Weekly Portfolio Summary

It's been 2 weeks since my last summary.  The markets (and more particularly so, my portfolio) got beat up pretty bad over this period of time as fears of rate hikes, pending doom with a Greek default, the dollar gaining value again, and Puerto Rico suddenly unable to pay on their debts all hit the markets hard.  Greece still hangs in the balance, and a tepid jobs number leads me to believe we will continue to see volatility through the summer months due to a lack of certainty of where company earnings will head and where the valuable investments will be.  

While the markets and my portfolio took a hit, I did a little buying to strengthen positions in my portfolio that I believe have no impact from Greece, a stronger dollar, or interest rate hikes.  At the same time, I took a significant set back in my On Semi investment.  Because I was out on business and unable to watch closely, I failed to sell some of my position as the stock broke through support and quickly entered free fall.  I believe the stock is too low to sell at this point, however, it's important to note that we're now in a typically slow time for tech stocks.  Today the stock reached its level of support.  If it breaks through, this stock is likely to fall even further, down to around $10, with the 200 day average currently at $10.85.  If it can hold here, it will help form a stronger floor to rise from.

Looking past the holiday weekend and into next week, we finally enter earnings season.  With so much movement over the last couple weeks based on macro and geopolitical events, I can only hope that real market results will help prove how stock prices should react.  Mind you, fear and greed conquer all over short periods of time, so any major default from Greece or sudden rate increases could push the market lower, if these events aren't priced in (which I don't think they are yet).  

For my portfolio, Pepsico will be the first stock to report, doing so on Thursday.  Analysts are expecting $1.24 in earnings on $15.8B in earnings.  Keep in mind that after last quarter's announcement, the stock had its price reset due to expected higher impacts from currency conversion rates.  The stock has actually held up nicely during the broad market selloff these last two weeks, which is somewhat encouraging.  Over most of the second quarter, the strength of the US Dollar has also decreased, which could set the company up for a potential beat of expectations.  I believe forward guidance, continued improvement in the NA beverages, and strong snacks growth projections will be key in this report.  However, once the stock reacts to the earnings results, I believe it will, again, be traded based off of the strength of the dollar.

Alcoa also announces their quarterly results this week.  While not a portfolio name, it's certainly a name that has been under consideration and the report will really help provide some perspective on the auto and aerospace industries - which can provide some insight to how Honeywell and On Semi may report.  It will be worth checking out if you can find the time.

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, 54.78) - 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 12.2% of my portfolio.

Citigroup (C, 55.37) - 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. 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 14.1% of my portfolio.

Isis Pharmaceuticals (ISIS, 56.13) - 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 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 7.1% of my portfolio.

Twos:
Home Depot (HD, 111.49) - 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.  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.  As all of these averages converge, I'm anticipating the likelihood of a breakout which could go either way, but based on housing data, I anticipate to go up.  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 14.2% of my portfolio.

Honeywell (HON, 102.51) - 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, 11.46) - Talk about getting crushed in the last two weeks!  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.  We've reached a point of prior support, so the next week could be very telling.  If we break and don't recover, the stock is likely to push down to the 200 day average, which is around $10.85 with another line of support at $10.  The chart also has a reverse 'W' formation, which is not favorable at this time.  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 10.9% of my portfolio.

Threes:
Pepsico (PEP, 94.66) - While no longer the hardest stock to own, it is still the stock with least favorable long-term setup right now.  While the company is executing solidly and is one of the best consumer packaging companies to own, it may not be in the best sector to own anymore as a rising dollar and risk of rising interest rates are likely to hurt the interest and earnings growth for the company.  Add into this technicals which show the stock now below the 50, 100, and 200 DMAs and you are faced with a strong ceiling of resistance. That being said, there does appear to be trend reversal potentially happening, as the price has crossed above the 20 day and we're starting to see higher lows to go with the lower highs.  As these converge, we're looking at a potential breakout, but to which side no one knows. 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.  I've managed to hold the stock up to earnings this week.  The announcement will help me understand the market's position on the stock and where things may be heading.  PEP is 12% of my portfolio.