Weekly Portfolio Summary
As the last week was generally uneventful, outside of the continued macro stories about oil prices and the Greek debt vs. the Euro situation, let's just move straight into next week. We have an extremely busy week in front of us next week as 3 of my holdings report. Starting on Tuesday, Home Depot will announce their fourth quarter and fiscal year 2015 results. Expectations are set at $0.89 earnings with $18.69B in earnings. While the results will be important, I think the biggest keys will be in regards to what they're seeing now and into their 2016 guidance with the low interest rate market combined with more confident consumers. I expect we'll hear glowing remarks, but be prepared for a poor stock reaction if the numbers or guidance aren't impressive, as it's run a lot over the last quarter.
On Thursday, Ensco reports their fourth quarter and fiscal year 2014 results. Expectations are $1.36 in earnings on revenues of $1.16B. I'm pretty sure everyone expects those numbers to be missed. Some of the key information to look out for will be what they do with their dividend, how jackups are performing (they've been helping hold up results with the lower deep water rig contracts), and what they're forcasting for rigs + current usage. Expect everything to be down, the question will be how much and for how long - if there is any perspective.
Finally, Isis Pharma will announce their fourth quarter and fiscal year 2014 results. As my newest investment, I still have more to learn and pick up here and this call will be important. I have a desire to increase my position and feel the price is a little high. This call will help me test my bias. Long-term I expect this to continue to be a great stock. Analysts are looking for earnings of $0.02 with revenues at $74.58M.
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.
On Semiconductor (ONNN, 12.02) - 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 why there's been such strength recently. I'm currently estimating earnings of $0.86 for 2015. After further research, I'm adjusting the multiple projection for the stock. The buyback is the company's strong response to the earnings multiple the stock is currently receiving - they wish to get the stock up to where they believe it belongs. Therefore, I need to provide a higher multiple. Based upon my projected earnings growth of 14.6% from last year, and assuming a 1.2 PEG ratio for that growth, I give a multiple of 17.5. This increases my price target to $15. I want to call out the fact that I think the stock has a 25% upside after already running 25% in the last 3 months makes me nervous - meaning I'm not just cheer leading the stock because it's moved up. If I'm doing my work right, though, the numbers don't lie. It's also important to note that most analysts that follow the stock have price targets below the current stock price and most of the ones that are higher don't go above a price of $14 - despite the last earnings and guidance. Down side risk includes weather phenomenons, or sudden macro economic changes to the industry as well as increased competition. We've also been recently seeing a wave of insider selling. Those changes could make the stock price fair to overvalued at $12. Based upon my risk/reward assessment, I think it's appropriate to upgrade the stock to a 1. On Semiconductor is 11.1% of my portfolio.
Citigroup (C, 51.78) - 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. I expect this to be a company and sector that will start growing/improving as interest rates and GDP in the US continues to grow. Additionally, we're seeing signs of economy improvement in other parts of the world, which would also improve revenues. While the rest of the world is by no means in an up trend, it does provide solace that known risks are priced in at this time. 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. While the technical indicators I've been watching appear to have indicated a change in the stock's behavior, I believe I'll find a better price to pick up some more shares. Citi is 9.6% of my portfolio.
Home Depot (HD, 112.24) - 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, Masco, 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. We learn more after they announce earnings and guidance on Tuesday. 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, 105.36) - I believe the company's focus on energy efficiency and safety will help them continue to surge forward. Additionally the air plane cycle is a few years from the end of it's strength. The stock will sell off for various reasons, but as long as these themes and the company's performance stays intact, those are buying opportunities. Honeywell 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 19.4% of my portfolio.
Isis Pharmaceuticals (ISIS, 67.01) - Long term, I think this stock has a lot of upwards potential with a number of drugs in their pipeline. Short term, I'm looking to build my position, which means I need the prices to come in. I continue to look for buying opportunities, but I may have been too cautious. One thing to note that I missed earlier, this stock should be measured against the Biotech index (IBB) to understand how the stock may perform as well. The result of the upward move in the last week appears to be in line with the IBB bouncing off its 50 day moving average. Patience will be key here. Interest rates have been a reason for these stocks to sell off, though we clearly haven't reached those levels yet. I don't think that's a reason to sell, more like a buying opportunity (unless you've been in for awhile and have gains to lock in). No upward price target at this time, more likely to have that after we hear earnings on Friday. Isis is 4.1% of my portfolio.
Pepsico (PEP, 99.06) - Pepsico has announced earnings which leaves them as one of the top consumer & packaged goods companies out there today, doing even better than the surprise numbers that competitor, Coca Cola put up. Biggest encouragement has been the sudden turn to increased revenues in the North American Beverages division. These increased revenues were on lower volumes, indicating a new-found ability to increase prices successfully. There are still foreign exchange risks, particularly in Venezuela, but Russian consumers continue to hold on due to the need for primary products of milk and juice. 2015 guidance was for EPS growth of 7% off of 2014 earnings of $4.63, putting my earnings estimates at $4.95. Due to success and favorable yield, I'm giving Pepsico a multiple of 22, but note that this is a little rich and something to watch carefully. Given my multiple and earnings estimate, I have a $110 price target. PEP is 9.1% of my portfolio.
Ensco PLC (ESV, 29.76) - 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. While I feel there is value in this stock, I don't expect it to make sudden, large gains. I feel the stock has shown strong support for a bottom around $27.50 and with the current volatility there shouldn't be a problem finding buying opportunities under $30. Just keep in mind earnings is on Thursday and their forecasts as well as their statement on the dividend will be key. 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 7.7% of my portfolio.