Sunday, July 12, 2015

Weekly Portfolio Summary

Greece and China and Puerto Rico, oh my!  That was the general theme for the market movement in the last week.  While markets were hurt significantly early in the week due to Greece's vote against Austerity, China's crashing stock market, and news from Puerto Rico on an inability to pay its debt.  As the week came near the end, China's government forced a stop in the declines by criminalizing sales of certain stocks, Puerto Rico's concerns appear addressed, or at least forgotten, and suddenly everyone is talking about a deal with Greece, which could at the very least kick the can down the road a couple years.  This left things unchanged overall for the week, but wow, what a ride it was!

This next week of trading will start as the last few have, with Greece front and center on the markets.  If there's no deal or a deal falls through, I think it's safe to say we'll see another beating against the US stock markets as well.  However, if a deal of some sort is made, it will likely create a sense of certainty and the markets will put in a floor until they focus on the Fed again.  Additionally, there is a very busy week of earnings reports ahead, which then become the primary focus.  My portfolio has two companies reporting, Citigroup and Honeywell.

I'm expecting a little of a mixed bag for Citigroup, who reports on Thursday.  As an international bank, they're likely to see some foreign exchange impacts again.  Rates over the course of the quarter were a bit of a roller coaster as well, though potentially better than expected.  The company will have to deliver, or it will likely take a hit.  Analysts are expecting earnings of $1.35 on revenues of $19.15B.

I expect Honeywell to deliver another solid quarter on Friday.  Revenues are likely to get hit from exchange translation again this quarter, however since rates were a bit higher this time around, I don't expect the impacts to be as hard as the first quarter.  At the same time, due to the hedging the company put in place for the stronger dollar, I don't expect earnings to be as large a surprise as it was last quarter for the same reasons.  In all, I expect the quarter to be solid and productive.  I anticipate a number of questions about China, due to their work in the country.  Analysts expect earnings of $1.49 on revenues of $9.75B.  The market turmoil has forced the stock to take a hit.  If the results are solid, the stock should be set up for a pop, though I doubt it will be so much to break the $105 ceiling that's existed the last few months without a deal in Greece.

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, 56.08) - 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 which helped the stock hold up over the recent macro selloff.  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 12.8% of my portfolio.

Citigroup (C, 54.56) - 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, however, we likely won't see a lot of progress here until the volatility subsides and the Feds actually raise rates.  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. My position is currently large enough that 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 mark.  Citi is 13.9% of my portfolio.

Isis Pharmaceuticals (ISIS, 53.50) - This is a speculative stock.  It will swing wildly.  I feel the stock has been getting hammered lately due to overall market direction where people are taking profits in winners, combined with an over supply of small biotech stocks, thanks to a barrage of IPO offerings in the last couple weeks.  I expect this to be a shorter-term impact as biotech is one of few areas that are not affected by either rising rates or Greece default.  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.  The stock has plunged below all moving averages now and technical analysis indicates the stock is likely to fall further.  Current best guess is that the next floor of support is in the $50 - 51 range.  Consolidation has turned into a price drop, however, I do not see any information that changes my overall thesis.  The glut of new stock supply is the one key thing to watch - especially if we don't see continued company buyouts in the space.  Current reactions could provide buying opportunities along the way.  I still believe in the company's long term potential and the price has entered points worth buying, as I did purchase a few shares a couple days ago.  My next target price is in the $50-51 range, if we get near it, also depending upon how quickly we get there.  If the stock puts in a reliable floor and shows a decisive change in direction, I could purchase more higher than that range.  Isis Pharmaceuticals is 6.8% of my portfolio.

Twos:
Home Depot (HD, 113.10) - Over the last number of weeks, we continue to see data that indicates housing to be improving.  This is in line with my thesis and only builds the potential that I believe is still in front of Home Depot.  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 millennials 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 since recovered and maintained that as a floor for the last few weeks.  The stock broke through the 20, 50, and 100 day averages on Friday, but needs a few days maintained at these prices or higher before I start believing we have a new floor of support.  That said, the 50 day average is starting to act like a floor, with the stock bouncing off that level a few times in recent weeks.  It is possible that the breakout is beginning to happen, however, a lack of a Greek deal on Monday likely sends this and all other stocks down again.  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 14.4% of my portfolio.

Honeywell (HON, 102.41) - 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 has been range bound between $100 and $105.  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.

On Semiconductor (ONNN, 11.34) - We've entered into the weak "off-season" for tech, which, when combined with a market downtrend is only amplified.  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.  Buybacks used to help provide a floor, but it seems the buying has stopped and a difficult market has sent the stock below all moving averages, except the 200 day.  The stock broke last week's line of support and went right down to the 200 day average, where it bounced off a low of $10.85 (yeah, the price I mentioned last week.  Don't ask me how that worked out like that).  The chart patterns haven't changed and I can't say I feel really favorable at this point.  The stock needs to hold the 200 day average, which is now at $10.79.  If there is positive macro news, the stock may be on a turnaround.  However, if not, we could be on our way to $10.  This move has been swift and extremely painful - lessons to be learned for sure.  The stock is now too cheap to sell, but while technicals indicate the stock seems to be slowing its descent, it may not be done going down.  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.  We may not see recovery for a couple months at this point.  On Semiconductor is 10.8% of my portfolio.

Pepsico (PEP, 95.55) - Pepsi's strong quarter has made me rethink this entire situation.  While I still acknowledge the risk that exists due to rising rates and/or a rising dollar, rates haven't risen as of yet and jumping the volatility of the markets makes this stock somewhat favorable to hold.  The management team is proving their ability to do well in tough times, so I'm finding little reason to leave them for a medium to long term holding, though I might lighten the holding when the interest rate really do rise.  The stock is gaining some steam on the technical side of things.  If the 50 DMA can cross the 200 DMA again, it could be a sign of some strength in the stock and a floor of around $96 gets put in.  However, its ceiling is currently the culmination of all of the major moving averages, so there is a bit of a battle in front of us.  I do see rising rates as a risk for causing the stock to go into a phase of multiple compression and that risk equates to the stock dropping to the $81-$85 range.  I don't see that as a likely risk until the Fed raises rates and the current Greece and China situations are resolved for a period of time at least.  Because of the current conditions, I still allow a 22 multiple on the stock with my raised guidance for 2015 to be $4.50.  This gives my upside target at $99 and I feel the current floor of support sits at about $93.50.  PEP is 12.1% of my portfolio.