Weekly Portfolio Summary

This last week started weak, but ended strong as the primary driver was two-fold.  First, we had the FOMC's announcement on Wednesday.  Contrary to my belief, they did remove the ever-focused word "patient," however, they also indicated that rates wouldn't be raised anytime soon.  By stating this, the markets started to relax on all of the fears of "negative impacts of rate increases."  I quoted that because I'm not buying it.  Everybody says they want the rate increases idealistically and yet they're saying everyone will lose money because of it?  It would be the first rate hike and would have minimal impact - not even allowing the 10-year treasury yield climb enough to be a choice over most high-yielding stocks, given the demand for those treasuries.  While the cost of borrowing money would go higher, by no means would it stop businesses from using it if business is picking up as many other overall indicators show.

The second major factor, and in some ways the key factor, for this week's move is the strength of the US Dollar.  As the dollar went higher, the market went lower and visa versa.  The key here is a hyper-focused attention in how the increased dollar translates into lower income for US based international companies.  Historically speaking, there has never been a real correlation to these beliefs from everything I've seen and read (there's a lot smarter people out there than me).  In the very short term, it'll give us buying opportunities.  It is a theme to be aware of, for now, though, and we'll watch to see when the theme breaks for something else.

Again we have little going on in the week ahead.  My portfolio has nothing in particular on the calendar and there isn't anything major I can call out for the broader market either.  There are some typical, generally meaningless, government reports, which are capable of giving the market a reason for a move in one direction or another for a day, but that's about it.  The key drivers will be macro themes - especially the US Dollar until we get into earnings season.  

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.


Citigroup (C, 52.98) - Now that CCAR is out of the way and Citigroup has successfully positioned themselves to increase the dividend and buyback plans, the stock is positioned for favorable stock price appreciation when the market allows for it.  It's the cheapest of the money center banks and CEO Mike Corbat is showing his ability to be a strong leader.  Treasury yields will still be the primary factor and an overall market correction would likely weigh on this stock just like any other, but those should present buying opportunities.  Given current circumstances, my tangible book value and price target for the stock sits at $59 for the current year.  Citi is 13.1% of my portfolio.

Home Depot (HD, 117.49) - After yet another strong earnings announcement, guidance provided feels conservative from the growth trends for the last 5 years.  While home formations stay flat and access to loans continues to struggle, we learn that much of the business the company sees is due to remodeling.  Considering the strength of the market, it will leave you wondering as to how strong things can really get - but also asking how long will this remodel surge last.  In the end, the consumer continues to be a strong driving force and will be the primary driver between the home improvement retail theme.  I have estimated fiscal year 2016 earnings of $5.20 and give the company a multiple of 30 as I expect us to see the multiple expand to meet the consistent growth we've been seeing.  My calendar 2015 price target is $130. HD is 14.5% of my portfolio.

Honeywell (HON, 105.40) - I believe the company's focus on energy efficiency and safety will help them continue to surge forward. Additionally the airplane cycle is a few years from the end of it's strength and the company is releasing new pieces of technology that hasn't been considered as potential earnings. 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. Getting a price below $100 is a reasonable buy and less than $95 is an unlikely gift unless the market goes into a correction.  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 19.5% of my portfolio.

Isis Pharmaceuticals (ISIS, 73.59) - This stock is a pure long-term speculative play.  As such the stock price will swing wildly and I expect to either hold through it or work to trade around a core position with the movements of the markets to the best of my ability.  With 38 drugs currently in the pipeline and a goal of up to 10 more to be put into the pipeline in 2015, there's a lot of opportunity for wins and the potential home run.  Risks are primarily competition to solve the same issues as well as getting drugs to market.  However, a rising interest rate was a factor to a 50% sell off around this time last year as well.  While there were other factors in that sell off, it's worth keeping an eye on.  I am not setting a price target as I don't feel skilled enough to predict that with a company that isn't generating positive earnings yet and an industry that has been considered richly valued for awhile.  Current prices feel too high to increase the position, so you must wait for a decent pullback or new news that makes the current price feel cheap.  Additionally, I think it's important to note that the technicals in this stock and the IBB biotech index are starting to look hot.  They may have a little more to run as we step into April, but I'm getting the sense that we'll see a correction around the End of April if not sooner.  These stocks have run a lot in a short amount of time and with people believing that summer is when interest rate hikes may begin, April/May could be the start to take profits and move money to financials and cyclical stocks.  Being up over 15% on the small position I have makes me consider selling out and waiting for that correction to re-trench - especially if the stock reaches new highs again in the coming few weeks.  Isis is 4.5% of my portfolio.

On Semiconductor (ONNN, 12.93) - 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 and am maintaining my multiple of 17.5.  The stock seems to have topped out in the immediate term and the last few days have me a little on edge.  If the market is poised to take a down turn, I want to lock in my profits - at the very least on my trade.  Down side risk includes weather phenomenons, or sudden macro economic changes to the industry as well as increased competition.  Those changes could make the stock price fair to overvalued at $12.  Current research puts my price target at $15.  On Semiconductor is 12% of my portfolio.

Pepsico (PEP, 95.34) - 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.  For now, this stock is likely to trade inversely aligned to the US Dollar, until the next big theme takes hold.  This could create buying opportunities.  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 11.8% of my portfolio.

Ensco PLC (ESV, 21.05) - Despite beating analyst expectations on for the fourth quarter, Ensco essentially disappointed investors by slashing their dividend more than expected and not providing revenue estimates due to the massive glut of rigs in or entering the market.  While all of the moves made make sense to preserve capital during rough times and align them to take advantage of the downturn, the fact of the matter is they have an issue with declining day rates due to lack of demand and oversupply of rigs.  Ensco does have a technology and performance advantage over competitors, but it won't protect them much over the coming months.  With a dividend yield of 2.4% I don't see the stock worth holding onto during this phase of the cycle because we don't know how long it will be and the stock is not likely to appreciate during that time.  I'm looking to release my holdings at a better price and take the loss for now.  When the supply situation is resolved and Ensco takes advantage of their capitalization, I would consider getting back in.  I currently expect that to be 12-18 months out, at least, though.  Ensco is 5.5% of my portfolio.