Weekly Portfolio Summary

A lot has happened in the last week, both for my portfolio and the market overall.  The market suffered all week except Friday as oil price drops, Treasury rate drops, economic data, and suprise announcements in the currency space put the market in a state of unease.  There were also some big biotech deals, to which one of my holdings was a participant in.  Finally, earnings season has begun with almost all of the institutional banks announcing with most of them disappointing.  Yes, this includes Citigroup, which my calendar planning software failed to notify me on.  All of this news and activity is putting a lot of pressure on stocks.  People are panicking and running, or hedge funds are being forced to raise money.  Additionally, the biotech sector has been running huge on the merger and buyout deals as well as with all of the positive news that was coming out of the JP Morgan Healthcare conference that occurred this week.  With that news done, we may see things take a breather and provide buying opportunities in the weeks ahead.  To close the week out, Pepsico made an announcment on Friday, after the close, that they have elected William (Bill) Johnson to the board of directors.  Bill is the former CEO to Heinz and is an advisor with Nelson Peltz's Trian fund.  This deal may help remove the concerns and stress that has existed due to activisim.

Like indicated, one of my positions was involved in an agreed buyout deal.  NPS Pharmaceuticals agreed to a buyout for $46 per share, effectively selling out the remainder of the position I held after pulling my costs out.  I might've made a little more money if I didn't sell out earlier, but given the circumstances and risks, I feel satisfied with all the moves I made.  Until the deal is officially closed, I'll continue to list this as a position to my portfolio, but updates will be limited essentially to any news or developments that comes to the upcoming FDA approval session they have on January 24.  Additionally, I also sold out of my Encana position this week.  While I could've gotten a little bit of a better price than I did, the main purpose here was to take my loss and raise the cash I need to make better moves and remove risk from an energy sector that has been getting hit hard this week and likely will get hit more in the future.  Currently my cash position is 18.9%, not counting a cash infusion I'm planning for the near future.

In the upcoming week, we will have only 4 trading days with the Martin Luther King holiday.  The Pepsico excecutive board announcement should still have some impact on Tuesday to give us a feel on how this works out for investors.  The trading community will be strongly focused on what the ECB will announce on Thursday and it will likely take a strong QE announcement to spurn the market higher.  On Friday, Honeywell will announce their fourth quarter and annual results.  After what was strong news from Alcoa, particularly for the airline and auto industries, I expect Honeywell's results to be good and the future to be conservative, but upbeat.  This is normal for Dave Cote and his team.


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, 28.99) - Ensco likely has a long year in front of it.  As oil continues to work to find its bottom and as oil drops, this stock is typically impacted as well.  There are still a lot of worries around the need for the company to cut it's over 10% dividend and this weighs on the price as well.  Slumberger announced a respectable quarter, which helped oil stocks on Friday, but this may only be temporary as the energy sector is just starting its earnings season.  Estimate and production cuts haven't really started happening yet and until they do, I don't think it's worth trying to get into the rest of my position in this stock.  At this point, I want to keep my energy holding light and wait for expectations to be so low they can't be missed.  This is when the stock will likely start to rebound.  How fast/far is far from known at this point.  I currently believe both my target price of $52 on 2014 earnings of $6.54 (personal estimate) is high.  At this point, I don't have much other information to go with.  I'll readjust as I get information better suited for my estimates.  Ensco is 7.9% of my portfolio.

Citigroup (C, 47.61) - Stock was hit hard as it and its competitors all disappointed on earnings this week.  A large chunk of the miss was due to a recorded $3.5B in legal charges, though the company also suffered declining revenues from its trading areas.  With low interest rates, oil's drop in price, and new found worries regarding the effects of the Swiss Franc currency trade all popping up, I feel Citi is going to remain stressed in the very near term.  It has filed for it's capital allocations for this year and it (CCAR) won't be decided/announced until spring.  That's the next catalyst I see unless something dramatically changes interest rate trends.  After hearing the quarter, I lowered my price estimated tangible book value to $59.  This is also my new price target until I get new evidence that says they'll grow better than expected.  Since the stock moved down so much, I feel there is still plenty of value in this stock.  As such, I'm ready to buy more of this stock soon, but am awaiting more technical support to say a bottom is in.  Citi is 9.3% of my portfolio.

Home Depot (HD, 104.12) - Retail stocks have run hard over the last 6 months and Home Depot has been one of the leaders of the space.  The stock has run a lot over the last three months.  Care should be taken with this stock around earnings.  If expectations are too high, the stock will get hit - even if it's a great quarter.  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.  I'm also expecting them to raise the dividend by at least 20% in February to $2.26, or more, depending upon earnings.  The stock is trading around 23 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 13.6% of my portfolio.

Honeywell (HON, 98.22) - Honeywell has generally been trading in line with the S&P 500 so far this year.  They've already shared conservative 2015 guidance and it already appears they were wise to hedge themselves on a strong dollar/low Euro.  I doubt little news will come up to change how this stock performs until they announce fourth quarter results on Friday.  This management team has been incredible and I expect them to be the same in the next year.  If the stock manages to pull back to around $95, it should be worth buying, pending any surprise info that is negative.  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 19.2% of my portfolio.

NPS Pharmaceuticals (NPSP, 45.45) - This company has been purchased by Shire PLC for a price of $46 per share.  While I could sell at a slight discount, I'd rather not.  Therefore, this stock is in my portfolio and will stay basically flat until the deal closes officially later this quarter.  The only interesting point will be what happens with the FDA when they present to get approval on their drug Natpara.  While it'll be interesting, I really expect no changes to the stock.  If it does jump for some reason, then I may sell out early.  NPSP is 11.9% of my portfolio.

On Semiconductor (ONNN, 9.84) - The current behavior of the overall stock market has dramatically hindered the trajectory of this stock, but the technicals are still intact.  In fact, things are playing out similarly to 2014 at this time.  The company will report fourth quarter earnings in February and I believe the company is well positioned in the semiconductor industry.  They have a lot of auto and consumer product focus, which have been faring well as various reports regarding consumer behavior come out.  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 closer to March/April.  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 9.6% of my portfolio.


Threes:
Pepsico (PEP, 97.29) -  After shooting over 100, the stock has pulled back into the mid-90s.  It will be interesting to see how the stock responds with a new director on the board that's tied directly to Nelson Peltz.  This should ease the activism pressure and tension while giving Nelson a vehicle to get ideas properly socialized and considered.  Indra Nooyi has been a very reliable CEO and provides her with additional ideas I'm certain she'll be able to leverage while providing her a little more freedom again.  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.  Most technical factors are looking positive, as the overall trend with the price staying at or above the 100 day average.  It did dip below the 50-day moving average and could be poised to grow from there.  While I'm struggling to find reason to increase my price target yet, I also feel like this stock is actually worth buying if it gets to $96.50 and really worth buying if it gets anywhere near $90.  I was worried that the stock was ahead of itself, and it was, but it doesn't appear to have rolled over.  I'm looking forward to their earnings report in February as it'll help me realign growth expectations as well as have an understanding of how much buyback impact we might see as well.  Yields are at 2.7% for now and given the drop in the 10-year, the stock has some more breathing room for now.  Just keep rates on the radar so you can react in a timely manner.  PEP is 9.5% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.