Weekly Portfolio Summary
I feel like the theme for the market and my portfolio for the month of July comes straight out of the old TV series, "Fantasy Island," with tattoo exclaiming "The pain! The pain!" Ok, not quite what he said, but it fits well anyway. When one worry passes, a new one seems to take hold and the markets shudder in fear lately. Now the fears are focused on a combination of the economic crash of China, as numerous industrial companies label it a place of complications with their second quarter earnings announcements. This is adding to European pressures, which already existed and is giving the US dollar more strength. That strength has an adverse affect to the stock market, now that so many companies are international. Domestic stocks appear to be braving the turmoil better than the rest, as we see continued signs of US retail and housing strength.
While earnings season is still in full swing, I will not have any stocks announcing this week. I'm looking forward to the week after, where On Semiconductor will announce their second quarter and let everyone know if the stock really should be collapsing, as it has been. Hopefully as we finish this month and look forward to August, people will start finding reasons to be more positive as we look forward. Summer isn't over yet, so I expect trading volumes to continue to be light. Maybe towards the end of the month things will change and pick up. For now, all I can do is ride this wave. I have a fair amount of cash standing by to put to work if/when prices feel appropriate.
Ones:
Cedar Fair (FUN, 54.09) - MLPs have been getting hammered over the last week with little news as to why. Interest rates actually fell along with these moves. All that said, this stock held well, not falling below my last purchase price until Friday. It does have hefty yield support, though, which helps provide some protection to the down side. 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 12.4% of my portfolio.
Citigroup (C, 58.70) - Legal fees appear to be subsiding after Citi made its second quarter earnings announcements. This provides much clearer visibility into the company's earnings, which is one of the reasons the stock has jumped. It is the cheapest stock in the money center banking industry, still coming in under it's tangible book value while the average stock is 1.6 times TBV. I believe this provides a lot of value in the stock when interest rates start to rise. Before then, the stock could be volatile as people place bets on the next rate hike vs. other events lowering treasury yields. I still see downside risk to around the $54-$55 range while I've now raised my overall guidance on the stock's prospects. The company is capable of earning over $5.50 in earnings, and I estimate TBV to be at $60.50 at the end of the year and place a 1.25 times TBV value to the stock, giving a price target at about $75.50. While I doubt the stock will climb that far over the next 5 months, it gives perspective on where fair value might lay. Citi is 15% of my portfolio.
Isis Pharmaceuticals (ISIS, 53.15) - 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. Additionally, the 50 day average is about to cross below the 200 (death cross), which could make for more pain. 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. 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, 113.59) - 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. That said, the 50 day average has been showing to be a floor of support, with the stock bouncing off that level a few times in recent weeks. It is possible that the breakout is beginning to happen, the macro pressures from China, Europe, and the Fed continue to find ways to pressure the market. 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 14.5% of my portfolio.
While earnings season is still in full swing, I will not have any stocks announcing this week. I'm looking forward to the week after, where On Semiconductor will announce their second quarter and let everyone know if the stock really should be collapsing, as it has been. Hopefully as we finish this month and look forward to August, people will start finding reasons to be more positive as we look forward. Summer isn't over yet, so I expect trading volumes to continue to be light. Maybe towards the end of the month things will change and pick up. For now, all I can do is ride this wave. I have a fair amount of cash standing by to put to work if/when prices feel appropriate.
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.
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.
Cedar Fair (FUN, 54.09) - MLPs have been getting hammered over the last week with little news as to why. Interest rates actually fell along with these moves. All that said, this stock held well, not falling below my last purchase price until Friday. It does have hefty yield support, though, which helps provide some protection to the down side. 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 12.4% of my portfolio.
Citigroup (C, 58.70) - Legal fees appear to be subsiding after Citi made its second quarter earnings announcements. This provides much clearer visibility into the company's earnings, which is one of the reasons the stock has jumped. It is the cheapest stock in the money center banking industry, still coming in under it's tangible book value while the average stock is 1.6 times TBV. I believe this provides a lot of value in the stock when interest rates start to rise. Before then, the stock could be volatile as people place bets on the next rate hike vs. other events lowering treasury yields. I still see downside risk to around the $54-$55 range while I've now raised my overall guidance on the stock's prospects. The company is capable of earning over $5.50 in earnings, and I estimate TBV to be at $60.50 at the end of the year and place a 1.25 times TBV value to the stock, giving a price target at about $75.50. While I doubt the stock will climb that far over the next 5 months, it gives perspective on where fair value might lay. Citi is 15% of my portfolio.
Isis Pharmaceuticals (ISIS, 53.15) - 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. Additionally, the 50 day average is about to cross below the 200 (death cross), which could make for more pain. 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. 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.
Honeywell (HON, 102.77) - The combination of the strength of the US dollar as well as weakness from so many international companies (excluding Honeywell) who get earnings from China are wreaking havoc. The company posted great results for the second quarter and raised the lower end of guidance with comments focusing on accelerating organic growth as the year continues. This forced the stock to soar above the $105 ceiling it had, but the macro issues have pulled it back down to its current prices. It's hard to say if the new floor is around $102 now, or if the stock could drop back down to the bottom of its previous range. The last time the stock dropped below the 200 day average was last October when macro concerns drove the market. That was a very short-lived drop that rebounded well. That lower end of the range has been 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 $6.05 - 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 19.6% of my portfolio.
On Semiconductor (ONNN, 10.31 ) - As a part of a semiconductor cohort that has been getting taken to the wood shed, this stock is a world of pain lately. 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, passing the 200 day this week. There are numerous technical factors that just aren't favorable at this time. The stock has filled the gap up we had back in February and has basically formed a left shoulder and head of a head and shoulders pattern. To form the right shoulder, the stock would bounce around the $10 mark for around 8 weeks. If there is positive macro news or we get a convincing second quarter result on August 3, the stock could then turn around. 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 9.9% of my portfolio.
Pepsico (PEP, 96.18) - 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 the stock's performance is providing a nice hold during all of the current market volatility. 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 12.3% of my portfolio.
Pepsico (PEP, 96.18) - 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 the stock's performance is providing a nice hold during all of the current market volatility. 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 12.3% of my portfolio.
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