Weekly Portfolio Summary

This week's middle name was "volatility," as we saw a wild swing to the down side to start the week only to finish very strongly to the up side from then through the end of the week.  There are two key drivers being attributed to this.  First is the fact that oil halted its sell-off and quickly started rebounding.  I can't say there is any driver to why this has happened.  Additionally, I can't say that we're done going up or that it won't go back down.  Still trying to figure all of that out.  Oddly enough, this all started when the "Santa Clause Rally" traditionally starts on Dec 17.  Regardless, when this happened, the Russian Ruble stopped dropping precipitously, the High Yield Corporate bond ETF (HYG) stopped falling in the same fashion, and everyone started feeling better it seems.  Both the Ruble and the HYG were causes for concern as there were fears of the impact that would come if Russia became insolvent as well as if oil continued to fall so fast that oil exploration and production companies would be forced out of business because oil became so cheap they can't pay bills.  While the latter risk still exists, it's nowhere near as vast as it originally looked, providing we actually have leveled off more than for just a few days.  All of these, in turn, allowed the market as a whole to catch fire as well.  Frankly, I find myself just as breathless - if not more so - at how fast the market has jumped up as I was with as fast as it has gone down.

I did make a trade, purchasing more shares of On Semiconductor as it had pulled back enough for me to take a chance.  This is meant to be a trade I'll hold for a couple months as I am expecting the stock to surge some more before it likely peaks in early 2015, as this has been a recurring theme in the stock over 10 years. 

With the holidays ahead, there are no new events coming up for my stocks.  Over the next few weeks covering the end of the year and early into the new year before earnings season kicks off I intend to do numerous reviews of my year's performance, what I did right, what I did wrong, what are the themes I think are right to play in 2015 and trying to assure I'm properly positioned for that.

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.


Ones:


Twos:
Ensco PLC (ESV, 32.77) - This stock continues to be bound by the fate of oil.  After having the price drop to below $26 it's now rallied over 21% in the last 3 days.  That's a huge move and at the same time oil itself hasn't moved enough to confirm it's done going down.  I'd like to see the stock drop back below $30 and/or see oil go over $59 to confirm stabilization.  Then I'll figure out what moves to make.  While I believe the dividend for Ensco is still safe, having a strong balance sheet, $11B in backlog, there is still macro pressures in front of us for awhile.  They're stacking more jack-ups in the Gulf of Mexico, but they've been able to maintain contract prices for now.  This will need to continue to be watched as we move forward.  I still feel that this stock is oversold, but now it's recovered too much and I'm still not certain that we won't head back down after such violent moves.  My target price is $52 on 2014 earnings of $6.54 (personal estimate).  Ensco is 9.1% of my portfolio.

Encana Corporation (ECA, 14.15) - This stock started recovering after their conference call regarding their CAPEX plans for 2015 displayed an on-going effort to spend more and produce more, primarily in their oils and gas liquids.  80% of their spend is focused on 4 oil plays and this equates to 65% of their free cash flow for the year - based on $70 oil.  While prices have started to recover - influencing the stock's over 16% move up this week, we're not near those anticipated prices and could find these numbers getting cut during the year.  For now, people seem to like what they hear and it's allowing me to recover some of the value on my position.  I'm over positioned in energy and I feel Ensco is the better opportunity between my two holdings.  Oil and gas needs to show stabilization we can trust.  I'm lowering earnings estimates to $1.55 for 2015 and am also lowering the multiple I think people are willing to pay to 12.  That puts my price target at $18.60 ECA is 3.7% of my portfolio.

Citigroup (C, 54.01) - After taking a hit due to its international business nature, the stock has started to recover from the low $50s it had dropped to.  There continues to be some international risk due to Russia and the contagion effect it may or may not have, but I believe Citigroup has this impact well contained and minimized.  We won't find out capital distribution results for CCAR until spring, so the only other thing to really impact this stock will likely be the 10-year yield, which also started going higher after the Fed announced this week that US growth is gaining strength while inflation continues to be minimal to non-existent.  Finally a delay in part of the Dodd-Frank legislation has also put some added bounce into the steps of financial as compliance costs might be a little lower than expected.  Typically banks trade around 1.5 times book value, but these have been anything but typical times for banks and those old standards may or may not apply. 2015 book value and price target continue to be $63.  Citi is 10.7% of my portfolio.

Home Depot (HD, 101.93) - After strong reports from both Home Depot and competitor Lowe's, the stock has been on the rise.  Add into that the strongest retail season of the year with lower gas prices and and a strengthening economy and consumer and you have a stock sector that is in favor.  Part of the run-up we've seen appears to have been moves taken in anticipation of a strong report.  Expectations on how this quarter will go is clearly on the rise and you will need to keep an eye on things - how busy stores around you are (and if they're buying a lot), how the stock price acts, weather patterns, and general expectations.  You don't want to get caught with a stock that runs tremendously, but announces in-line or below expectations.  I've reiterated my earnings guidance for 2015 to $4.55 and have what I believe is a conservative estimate for 2016 of $5.23.  Management raised guidance twice on their year already and they expected a stronger second half of the year compared to the first half.  I'm also expecting them to raise the dividend by at least 20% next February to $2.26, or more depending upon earnings.  The stock is trading around 21 times fiscal year 2015 earnings and currently is growing earnings at about 21%.  Valuation may look a little high, but the PEG ratio is at about 1,which is rather cheap compared to the industry average of 1.4.  My calendar 2015 price target is $110.  HD is 13.4% of my portfolio.

Honeywell (HON, 101.16) - Honeywell has quickly recovered from the stock market's correction and is well positioned again.  They have provided their 2015 guidance and, as usual, they have been cautious with expectations.  That being said, they still expect equal or greater sales and margin increases across the entire company.  Oil was given due attention, but it appears that the main areas where oil prices might impact the company represents about 4-5% of all earnings.  This management team has been incredible and I expect them to be the same in the next year.  They provided earnings guidance of $5.95 - $6.15.  My estimate on their 2015 has been $6.12 with a multiple of 18 due to how consistently this company delivers.  This resulted in my 2015 target of $110.  HON is 20% of my portfolio.

NPS Pharmaceuticals (NPSP, 36.04) - This company advanced this week based off of a couple rumors.  First rumor revolved around Shire looking to buy the company again after their deal with Abbvie fell through.  This was likely the primary reason for the price jump.  Secondarily, there were rumors floating around Twitter regarding someone getting a private dinner with CEO Francios Nader, speaking about the future of Natpara and it's upcoming approval meeting with the FDA.  I recall similar rumors surfacing around late September as we approached the original FDA approval meeting.  The stock shot up, then collapsed to the will of short sellers up to a few days before the scheduled meeting.  The very same can happen here again as there seems to be a lot of doubt around how many people will be able to use this treatment.  I've made guesses (see my most recent analysis) and tried to keep them conservative.  If the company is bought out, I believe the offer will be well in excess of $40 - especially if the deal doesn't go through until after an FDA approval happens.  Long term target remains at $40, but I still don't think it will get there until we're within a couple days of the FDA meeting.  NPSP is 16.6% of my portfolio.

On Semiconductor (ONNN, 10.08) - The stock continued it's anticipated pullback early in the week only to charge back over the $10 mark by the end of the week.  With what tend to be a generally positive time for the stock market over the next 2 weeks, the stock could climb back up to the $10.25 mark it reached a couple weeks back.  I believe the company is well positioned in the semiconductor industry, with a lot of auto and consumer product focus, and will have another leg higher.  The company also has a share buyback program in place that could help provide some support on pullbacks.  I do not believe the stock will be done running higher until the January - March timeline  Historically speaking, this is the trend the stock has had - minus exceptional years (2008, 2009 for example).  The price Target is at $11.  While we want to see continued growth advancements, the stock tends to sell off over the spring/summer and then can be revisited early fall.  While this shouldn't be an absolute dictator on your holding, it's something to pay attention to.  On Semiconductor is 10% of my portfolio.


Threes:
Pepsico (PEP, 95.44) -  Though I hate doing it, I had to downgrade this stock for now.  It's getting too close to my price target for 2015.  That puts the stock at a multiple of over 19 times what I expect for them to earn in 2015.  It's possible that my earnings estimates are currently low.  With oil prices as low as they are, we could see accelerated margin growth due to lower input costs - both for corn and oil.  This is a company that's usually hedged out 6 months in front of themselves, though, so if that is the truth, it's still only a second half 2015 story.  As such, I can't help but feel that the stock is starting to get ahead of itself - even with Nelson Peltz trying to bring out more value.  Even if I adjusted earnings growth to something really strong - say 13% - my price target would only go up a few dollars.  With a yield at 2.6% and the fact that we may start witnessing a sector roation due to a growing economy, we're close to losing any benefit of holding this stock compared to a 10-year treasury as well.  I'd recommend buying this stock if it pulls back to $91 or less as long as this story stays intact.  PEP is 9.4% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.