Saturday, June 20, 2015

Weekly Portfolio Summary

Last I wrote, I said there was nothing happening this week.  Well, that was both true and false.  I completely forgot about the 2-day Fed meetings that were held and how people were eager to cling to their every word to determine what might happen with rates.  However, in the grands scheme of things, it was virtually a non-event.  The Fed didn't tell us much more than they have been already and people weren't expecting a hike at this meeting anyway.  After that fiasco was completed, all attention immediately jumped to the ever continuing woes with Greece and the "Will they or won't they default" chatter.  In my mind, Greece defaulting does little more than create a period of panic with little actual reason for it.  Maybe I'm being too passive, but as I look at my portfolio, at least, I just don't see the risks.  Stocks will probably get hit regardless, though, and that may create opportunities to put money to work.

Outside of the pending Greece announcements coming over the weekend and into Monday, there is nothing going on.  Earnings season doesn't start for two and a half weeks and none of my holdings will be part of any significant conferences in the week ahead.  This is a matter of stay the course, start preparing for what might come starting 2016, and make sure I feel well positioned to navigate what's going on.

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:
Cedar Fair (FUN, 58.00) - The key short-term factor will be interest rates.  If they're going up, stocks like this one (MLP) will get hit regardless of how well it's doing.  It does have hefty yield support, though, unlike a lot of companies out there.  Over the long term, this is a stock that gives lots of money back to shareholders via dividends and buybacks and has growth.  As this stock continues to deliver money to shareholders while it also grows, this stock appears capable of going higher.  That's not to say it won't take hits, as it has been recently.  In fact because it's a yield alternative type of stock, I expect it will take more lumps as the market gets close to times when it expects a rate hike.  I estimate the company to make $2.94 in earnings this year and have a 2015 price target of $64.50.  Cedar Fair is 9% of my portfolio.

Citigroup (C, 56.23) - This is another stock that is bound by interest rates in the short term.  In this case, if rates are rising, the stock is likely to go higher.  Given interest rates are so low and the estimated direction is up, the interest rates and increased margin rates the banks can make money on is my long term thesis as well.  The company is now able to start delivering more cash back to investors in the form of buybacks and dividends as well.  This should help provide a continued floor on the stock. As my position is currently large enough, I won't buy more of this stock, but I have strong convictions it is going higher.  The technicals appear to indicate the stock's floor has been raised to around $54.50 from it's previous $50.  Citi is 13.9% of my portfolio.

Twos:
Home Depot (HD, 112.43) - The company delivered great results while the competition missed expectations.  Despite this, the stock has fallen since those earnings announcements.  The short term factor appears to be related to a combination of gasoline prices and interest rates, such that if either go higher, this stock tends to get beat up.  The long term thesis is that despite the run this stock has had, we're far from the end of the cycle.  Household formations are increasing, people are likely to go after homes before rates start getting too high,  and there are an awful lot of millenials looking to get out of Mom and Dad's basement and form their own household.  The stock dipped below it's $110 floor, but has recovered for now.  I'm seeing a very strong ceiling around $112 as held by the 20, 50, and 100 day averages and a strong floor around $105 held by the 200 day average.  I am expecting earnings of $5.30 and a multiple of 24.5.  My calendar 2015 price target is still lofty at $130. HD is 13.9% of my portfolio.

Honeywell (HON, 105.34) - This is a stock that seems to show the overall market sentiment towards the US Dollar and Treasury yields  If the dollar is down and yields are down, this stock rises and visa versa.  The quarterly report was strong and now the dollar is still weaker than when they reported, which should help revenues in the second quarter. The stock was range bound between $100 and $105.  It cracked $105 for a little while, but has not been able to maintain it.  That lower end of the range is managing to be a very reliable floor to buy off of, not withstanding any significant market news outside of the dredge we've been hearing all year so far.  From a charting perspective, I don't think it gets much better.  It might not be growing at the fastest rate, but the stock just plods along at a nice pace in line with the moving averages - extremely reliable.  Guidance now sits at $6.00 - 6.15. My estimate on their 2015 stays at $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, 62.55) - This is a speculative stock.  It will swing wildly.  The stock has moved up on positive news lately, only to pull back shortly thereafter.  With nearly 40 therapies in the pipeline, this platform continues to show strong promise for the company as it goes forward.  It's a long-term speculation play and it should be traded around to be most efficient in profiting from it.  I'm still struggling to valuate the price target for a company growing fast, but with no earnings.  I wouldn't be surprised that the 52 week high for 2015 has already been set, but anything is possible in this space.  The balance sheet has adequate strength at this time as well.  Technical analysis indicates to me that the stock is in for more downside potential.  The stock has fallen below the 50 DMA and now has the 20, 50, and 100 day averages as ceilings with the 200 DMA still holding support around $60.  Everything I see in the charts indicates a period of consolidation.  This could provide buying opportunities along the way.  I still believe in the company's long term potential, I just need to find the right short-term opportunities to buy more stock.  Isis Pharmaceuticals is 3.9% of my portfolio.

On Semiconductor (ONNN, 12.51) - Tech has been a roller coaster of late.  It's performed well on up days in the market and really badly on the down days - particularly this stock.  We've entered into the weak "off-season" for tech, which could be playing a role in the short term trajectories.  That said, with international exposure, there's some inherent risks with this stock in a rising rate environment too.  The company is making a real move in the auto and industrial spaces with their imaging sensors solutions in particular and I believe with the push to more automated machines coming on strong, the company has reason to feel upbeat.  Cash flows are strong and so is the balance sheet, resulting in share buybacks.  The buybacks are proving to help put a floor into the stock, which I currently estimate to be around $12.25 with both the 50 and 100 DMA holding the line of support in the $12.25-$12.50 range.  It's certainly possible to break through this floor and if it does, we could be going down below $11, so this must be watched closely.  I still estimate $0.86 earnings and raised the multiple to 15 (it might actually be the earnings side that should be increased, but here's how I'm working it for now).  This provides a price target of around $13.  There's long-term potential in the stock, however, tech moves erratically.  It's completely possible to walk away early only to come back for more a few months later after an over done pullback.  On Semiconductor is 11.6% of my portfolio.

Threes:
Pepsico (PEP, 94.86) - This stock has really fallen out of favor with the Wall Street fashion show since the start of June and is probably my hardest stock to own right now.  While the company is executing solidly and is one of the best consumer packaging companies to own, it's not in the best sector to own anymore.  The rising rate environment hurts this company doubly.  First, this stock has been a bond equivalent.  As yields rise, this company's 3% yield is no longer as safe as treasuries.  Additionally they are an international company with a lot of exposure in locations that are seeing significant impacts when the US Dollar is strong.  This means earnings will be decelerating as well.  Add into this technicals which show the stock now below the 20, 50, 100, and 200 DMAs and you are faced with a strong ceiling of resistance.  While the balance sheet is strong and I believe in management, the new environment is resetting my thoughts around stock valuation for this company.  Rising rates and decelerating earnings are likely to equate to a lower multiple.  Based on the news from the last earnings call, I adjusted my guidance and targets to be more cautious.  The earnings estimate was lowered to $4.44.  I had provided a 22 multiple for  the stock which gives us a price target of $98, however, I'm seeing the risk side of this being a point where the multiple goes down to 18 and we need the yield to be at 3.5% before it gets more support.  That indicates a potential drop down to about $80.  That's a 13 down, 5  up risk reward ratio and I'm not very fond of it.  The 50 DMA is crossing down over the 200 DMA with a ceiling at about $95.75 right now.  I desire to hold the stock through the second quarter announcements in early July to see if there's reasons I'm missing that make this more favorable, but I may have to jettison the stock before then.  PEP is 11.7% of my portfolio.