Weekly Portfolio Summary


After yet another quiet week overall, things are about to get more busy, as earnings season started this week and now I will start dealing with announcements from companies in my portfolio.  Announcing next week will be Citigroup on Thursday and Honeywell on Friday.

The analyst community has an earnings estimate of $1.39 on $19.3B in revenues.  Revenues are expected to be down from the same quarter a year ago on higher earnings.  This indicates to me that earnings growth comes from cost cutting and not any significant growth overall.  Revenues are expecting a 1.5% drop from the same quarter a year ago.  The stock has been climbing steadily since the company's fourth quarter earnings release and subsequent positive CCAR results.  I'm a little surprised that earnings are expected to be as high as they are, given the weak interest rate market, but this is clearly a stock that can go either way depending upon how it and its peers reports over the next 10 days.

For Honeywell, the good news I have at this point is that Alcoa commented numerous times in their call regarding the strength in both the automotive and aerospace markets - both of which Honeywell has their own strengths in .  Between that and the company's hedging to prevent significant foreign exchange impacts, I believe the company will report strong numbers.  Consensus from the analysts consists of earnings at $1.39 from on sales of $9.49B.  Besides the things I already mentioned, keep an ear out for their comments on how things are going in Europe as well as to whether or not they start increasing the lower end of their 2015 earnings range.  This is, typically, how the company would approach increasing their guidance to start with.

It's probably also to watch the results from Citibank competitors, as they come in.  JP Morgan and Wells Fargo announce on Tuesday,  while US Bank and Bank of America announce on Wednesday.  These announcements will undoubtedly set Citigroup's trend for stock performance before they announce.  Weaknesses in these may provide an opportunity to pick up some Citi before they announce.

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:
Citigroup (C, 52.43) - At this point stock performance will be based upon results announced from the banking community as well as the company itself.  I've said in the past that this may be a dead stock this year and for the most part, it's been just that as the stock is down 3.1% on the year.  As long as bond yields continue to stay low, people won't see a lot of potential for the banking sector.  That being said, after the company had one of the best CCAR results this year, it seems CEO Michael Corbat is positioning the company well for future gains.  I don't see anything that changes my current tangible book value of $59 for 2015, though earnings announcements could change that.  As such, $59 is still my price target and is a  12.5% increase from current prices whereas I see $50 has been holding as a strong floor for now.  Citi is 13.2% of my portfolio.

Home Depot (HD, 115.24) - 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.  With earnings season underway, it will be important to keep an eye on earnings reports from companies like Whirlpool and Sherwin Williams as potential indicators to how this company will do.  Like last year, it's possible to see a drawback in sales due to rough weather in February and March.  However, like last year, I expect management will ease those concerns as they recover most of those sales starting in the second quarter.  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, 104.70) - 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. The stock has been range bound between $100 and $105 and this week's earnings report provides the the first real catalyst to potentially break that cycle.  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 19.8% of my portfolio.

Isis Pharmaceuticals (ISIS, 65.70) - 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.  The stock seems to have put a strong floor in the $60-$61 area and has since taken off again, however, I'm concerned about all of the secondary offerings other biotech stocks are suddenly putting out to the market and feel there's a strong potential that this flood of stock supply will take a significant hit to the sector overall in the near future.  I have no price target at this time.  Isis is 4.1% of my portfolio.

Pepsico (PEP, 96.20) - 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.  The strength of the US Dollar has stabilized, but I'm concerned about foreign exchange impacts when they report first quarter earnings in a couple weeks.  It's possible people are underestimating those impacts and we could see the stock get hit short term - even if these positive themes continue.  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.

Threes:
On Semiconductor (ONNN, 11.58) - 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 10.9% of my portfolio.