Weekly Portfolio Summary
The market continues to challenge us with its violent moves up and down, however, the S&P 500 has spent the first 5 weeks of the year basically not moving as it bounces in V-shaped tops and bottoms betweeen $2064 and $1990. The story to the earnings season has been how international companies (save a hand full of exceptions) have been marred by currency conversion losses and domestic companies have been doing generally well. The domestic theme was reaffirmed on Friday when the January jobs number came in above expectations. The employment rate decreased as more people returned to the market in hopes of finding a job. Wages also grew 2.2% compared to a year ago and that drove many traders to begin the "fear the Fed" trade as predictions of interest rate increases happening earlier than expected and the "impending doom" related with it ended up sending the market down after a strong start on the day.
While only 5 weeks into the year, I'm getting a sense that this year is leaning to be the opposite of last year. Last year, most investors performed best by picking up an index fund or ETF and letting it run, while the stock pickers largely struggled. This year, it seems the stock pickers have a better hand - at least so far. Pick the right stocks and you're outperforming the market, which as I said, is generally flat to slightly down. While that statement is generally true, this is meant more in terms that there is a decent supply of stock outperforming the market, not a lowly few you have to be lucky enough to grab. From a technical perspective, it could be said the market is taking a breather and building a nice base. This is entirely possible and only time will tell.
After this week's nice report from On Semiconductor, we now look forward to next week and hope to hear an equally impressive report from Pepsico on Wednesday. There's little doubt that we will hear about currency conversion issues, but I think the key factors will be around the dividend, share repurchases, and organic growth. Earnings estimates sit at $1.08 on $19.66B in revenues. I'll be looking for organic growth to be 7% or higher. Additionally, new stock Isis Pharmaceuticals - a new speculative stock I've dipped my toes into - is attending the Leerink Global Healthcare Conference on Wednesday. This is a first foray into the stock, so I'm not fully up to speed on how it operates yet. I'm not expecting any big announcements to come from this conference, but it's something to keep an eye out for.
While only 5 weeks into the year, I'm getting a sense that this year is leaning to be the opposite of last year. Last year, most investors performed best by picking up an index fund or ETF and letting it run, while the stock pickers largely struggled. This year, it seems the stock pickers have a better hand - at least so far. Pick the right stocks and you're outperforming the market, which as I said, is generally flat to slightly down. While that statement is generally true, this is meant more in terms that there is a decent supply of stock outperforming the market, not a lowly few you have to be lucky enough to grab. From a technical perspective, it could be said the market is taking a breather and building a nice base. This is entirely possible and only time will tell.
After this week's nice report from On Semiconductor, we now look forward to next week and hope to hear an equally impressive report from Pepsico on Wednesday. There's little doubt that we will hear about currency conversion issues, but I think the key factors will be around the dividend, share repurchases, and organic growth. Earnings estimates sit at $1.08 on $19.66B in revenues. I'll be looking for organic growth to be 7% or higher. Additionally, new stock Isis Pharmaceuticals - a new speculative stock I've dipped my toes into - is attending the Leerink Global Healthcare Conference on Wednesday. This is a first foray into the stock, so I'm not fully up to speed on how it operates yet. I'm not expecting any big announcements to come from this conference, but it's something to keep an eye out for.
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.
Isis Pharmaceuticals (ISIS, 59.01) - This is a speculative biotech play I have started to nibble on. I believe their RNA-based platform positions the company for a large number of potential wins and they already have a large pipeline. They partner with other companies to allow themselves to keep small and leverage their expertise in order to improve the solutions they create and then to get them marketed and sold while collecting milestone payments, fees, and royalties along the way. Currently, only 1 drug has made it past FDA approval, but they have 3 drugs in phase 3 right now, plus some other solutions, like an anti-coagulant which could be block busters. I believe we've entered a correction in the biotechs after a big run in the last 6 months and I'm using this to get into the stock. I believe the stock could get as low as 50% below it's 52-week high or lower - which puts the bottom around $37 or lower. But I feel it's prudent to buy some small positions on a really wide scale, as I never know when exactly things will stop going down. I believe the down trend to be only a correction to how big/fast things ran, but a risk is how the markets play interest rates. Around this time last year, biotechs had a really hard hit due to fears of rising rates and a rotation to more industrial names. Beware of anything similar happening. No upward price target at this time, more likely to have that after we hear earnings at the end of the month. Isis is 3.7% of my portfolio.
Citigroup (C, 49.14) - The bank will continue to be bound by the trajectory of the 10-year US Treasury until another catalyst makes the bank more appealing. The next catalyst I see is likely to be the results of the CCAR which should come out sometime in March or April.. Given current circumstances, my tangible book value and price target for the stock sit at $59. Since the stock moved down so much, I feel there is still plenty of value in this stock. The technical indicators I've been watching appear to have indicated a change in the stock's behavior. I do believe I'll find a better price to pick up some more shares, though. Citi is 9.3% of my portfolio.
Home Depot (HD, 109.04) - Retail stocks have run hard over the last 6 months and Home Depot has been one of the leaders of the space. While strong results from both Stanly Black & Decker and Whirlpool are encouraging, there are a number of factors playing into this stock that need to be watched. First, the price has run dramatically and poses some risk. To counter that, though, interest rates have dramatically fallen - posing for another period of incredible home-buying opportunities. Home Depot is also in the sweet spot of being both domestic and a beneficiary of consumer spending strength. 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 13.8% of my portfolio.
Honeywell (HON, 101.75) - This stock will show some struggles as it's lumped in with other international companies, despite the measures they've taken. They reiterated their conservative 2015 guidance, keeping it completely in line from December's announcement. 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. 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 19.3% of my portfolio.
On Semiconductor (ONNN, 11.39) - A superb fourth quarter earnings announcement yielded both strong results and strong projections in the auto and wireless/phone businesses it serves. While the company still expects seasonal patterns, demand is strong and inventory is down. Add into that 2 acquisitions made last year that are already producing earnings and design wins despite full integration being expected this year and a buyback worth about 22.5% of the company's current market cap over the next 4 years and I see lots of reasons this stock could go higher. Keep an eye out for technical trends to see if they reappear. Also watch out for bear raids, as the stock has little short pressure. I'm currently estimating earnings of $0.86 for 2015. Given the current 13.4 multiple it has and an estimated $0.50 per share impact from share repurchases in 2015 and I have a $12 price target, which might prove to be a little conservative. On Semiconductor is 10.8% of my portfolio.
Pepsico (PEP, 96.71) - With the activist investor noise, hopefully, out of the way, we can focus strictly on how the company is performing again. Fourth quarter earnings will be announced on Wednesday and we'll want to watch for currency impacts as well as organic growth. Lower input costs should help margins and profits, however, there are worries about the impacts of currency conversion combined with risks of lower profits out of their Russian businesses as things heat up over in Ukraine. Technical factors I've been watching rolled over this week after the strong drop. Right now, the stock appears to have a fairly strong floor at $92.50. Based on prices and the floor I currently see, I've upgraded the stock to a 2. The only things keeping me from saying I'm willing to buy the stock at these levels is the combination of the looming earnings report and I really don't want to violate my base - which is much lower. PEP is 9.2% of my portfolio and my price target is $102 for 2015 on an estimated $5.10 of earnings.
Threes:
Ensco PLC (ESV, 30.19) - 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. Production & rig cuts appear to be accelerating and the news from all of the earnings calls in the next couple weeks have the potential of really shaping the bottom to oil and oil-related stocks, which I believe is now forming. I am starting to assess my timeline for this stock, and whether it's worth holding onto the stock while it works to find its footing. I've done this with Citigroup, with some success, however, some failure as well. I may determine it would be better to take my losses here and use the money for something more applicable to the current market. 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. Due to those factors, I think it's best I downgrade the stock for now (yes, this is a late downgrade and may change in short order). I'm not necessarily looking to sell the stock if it goes up a little, but I am considering it, as I stated. Ensco is 8% of my portfolio.
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