Weekly Portfolio Summary

The market wasn't lacking in volatility as we saw both the biotechs and semis take a sudden, dramatic hit.  The biotech market you could sense was getting hot, however the semis caught me by at least a little surprise.  News from memory chip maker SanDisk pre-announcing to the down side for earnings started things, but what I believe to be the big impact was an analyst downgrade of Taiwan Semiconductor due, in large part, to inventories growing out of control for their top-5 customers.  By the end of the week, biotechs appear to already be putting a bottom into their pullback, which feels shallow.  Semis are still unstable, however news that Intel is in talks with Altera may put in a floor if it turns into something serious.  At the same time, we're about to enter April and tech tends to swoon in the April-May time frame and don't generally recover until the end of summer.  There's a lot going on here and a lot to pay attention to for those holding stocks in these industries.  I, personally, need to be careful that I don't panic.  The more info I have on hand, the better my chances will be that I can make better decisions.

Earlier this week, I unloaded all of my shares of Ensco PLC at a significant loss.  Please seem my trade analysis for my thoughts behind it.  With this sale completed, I am back over a 25% cash position.  I'll be taking advantage of this pre-earnings quiet time to prepare a shopping list, in addition to the heavy attention to the industries previously commented.

We have a 4-day trading week in front of us as the market will be closed for the Easter holiday.  News will be extremely light, and I wouldn't be surprised to see trading volumes light as well.  All that being said, we have one big piece of information that comes out on the day the market is closed.  March non-farm payroll information (the jobs numbers) will be released on Friday.  Clearly, this won't make a sudden change in market behavior until the following Monday, but it's also safe to think the market will be placing their bets on the results during the week.  Both the jobs number itself as well as wage increases will be key factors to note and could likely generate a whole revival of the game of "When will the Fed raise rates?"

Painful lessons
At this point in time, I sense my portfolio suffered from my personal greed and I wish to detail it in hopes I and anyone reading learns in the future.  All day during trading and then while writing my weekly summary report last Friday, my gut was telling me I needed to get out of at least some of my position of On Semiconductor.  Since February second, the stock had climbed over 30% on solid quarterly results with upbeat guidance and an increased share repurchase program.  This resulted in a number of price target changes and upgrades from the analyst community, which I had anticipated.  In the last week, the stock lost 8% and was down more than that earlier.  While I do have conviction that the stock can get to $15, I don't expect that to happen soon.  When a stock rises that much and it's volatile, as this one tends to be, you need to take some profits and reduce risk.  I was thinking about it, but I should've been acting on it.  Instead, I was hesitating and hoping for $13 or higher instead of paying attention to all the signals I was seeing (I saw technical signals and just the stocks behaviors as indicators that we couldn't push much higher for now) and it resulted in holding stock I could've otherwise have sold at a much better price, that I could've considered re-buying during the pullback or maybe next week if I see signs of a bottom.  These are lost opportunities to bolster my portfolio and are things to guard against in effective investing.  What's done is done.  I now look to capitalize on where I stand today, but I would be remiss if I don't acknowledge mistakes of the past.

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, 51.00) - 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.  The stock has pulled back quite a bit recently and is nearing thresholds where I begin wanting to buy the stock.  Given current circumstances, my tangible book value and price target for the stock sits at $59 for the current year.  Citi is 12.9 % of my portfolio.

Home Depot (HD, 113.96) - 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.  The stock recently suffered a fairly strong pullback, likely on the various "disappointing data points" we've seen released from the US government lately.  We had a strong run that got a little ahead of itself, but I remain confident nothing has changed in my theories.  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, 102.96) - 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. Since February, the stock seems to be pretty range bound between $100 and $105.  I expect this to continue at least up to first quarter earnings (planned for April 17).  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 19.6% of my portfolio.

Isis Pharmaceuticals (ISIS, 63.37) - 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 (once that core position is built).  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, rising interest rates that cause a dramatic rotation out of healthcare and into something else, or an investment community that lost its appetite in this space.  Last week I watched the stock pull back dramatically - going below my cost basis, before since recovering a little.  It appears as though the pullback may be done, but I'm not yet convinced and am playing things cautiously.  I might buy a little more if I become convinced this pullback is done and it hasn't jumped too much from here.  I have no price target at this time.  Isis is 4% of my portfolio.

Pepsico (PEP, 95.95) - 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 12.1% of my portfolio.

On Semiconductor (ONNN, 11.80) - New risks have introduced themselves into this stock.  Primarily, the stock price appreciated too much without significant changes in earnings or margins.  While the stock has been and continues to be under valued compared to its growth, multiples don't typically expand over night.  Add in risks caused by insider selling and announcements that other companies in the industry may be running into inventory issues and you need to become a little more cautious.  I maintain an $0.86 earnings estimate and my $15 long-term price target until I get facts from earnings or other reliable sources to change my model.  This means I still believe that the stock could eventually reach a 17.5 times earnings multiple.  However, until we hear earnings information again, I don't feel confident that the stock can climb over 14.5 times earnings without significant upbeat news in the space.  As such, I've downgraded the stock to a 3 due to the current risks, stating that I'm more likely to sell on price appreciation than increase my position on any further price depreciation.  On Semiconductor is 11.2% of my portfolio.