Weekly Portfolio Summary
If you love wild roller coasters, this week's market was right up your alley. After opening up on Monday with the Dow down over 1000 points (no, that's not a typo) the market worked it's way back to about even through wild swings both up and down. Talk about taking lumps and learning lessons! My broker wasn't functioning the best, plus I wasn't ready for something like this. As such, I saw opportunities, like Pepsi down around $82, Home Depot, down 20%, Isis registering under $43, Citigroup under $47, and both Honeywell and Cedar Fair at rather juicy prices. Not a single trade executed, though. I panicked. We were down that much, we could go down more. I should wait for some confirmation that the down side is at least slowing. It slowed - right back to going up, and then back down, but never to those prices again, before charging ahead again. The one thing I did do, was finally pull in that cash infusion I had always talked about. A lot of good that did for me then. I got caught up in the action and froze. Rookie mistake, no doubt.
So now what? Is the bottom in? Have I missed my chance? I'm shocked to find many of my stocks higher than where they were last week, so I can certainly say I don't think I should be buying right now. The market has run pretty well over the last 3 days and I find it hard to believe that everything is OK now, despite very little in the overall picture changing. There are changes, though. China has sold some various Treasuries to invest into their economy and markets to help stabilize things. They also lowered some key interest rates a little. From the Fed front, as much as I'd rather not talk about it, we've heard from some people that raising rates in September is still on the table, while later this week, a couple people with more weight in the say of the matter have come out saying that the international markets do pose a factor in the decisions they make. While no one knows what will happen, we're in a position where it's not assumed the hike will happen on the 17th. Given those things, it's possible that the wild movements will slow down a little, though September is known for being a bad month, so beware of that as well.
Speaking of September, the new month begins on Tuesday, which means Labor Day is just around the corner. Next week is, historically a rather slow week. We're clearly not in normal times right now, but it's still possible we'll have a bunch of people on vacation and volumes will subside. If they don't, it's possible we will have an idea of what direction to expect stocks to go for the month - at least until the Fed speaks. Also beware that Friday is jobs day. I expect that day to be a bad news is good news day - meaning that a lower than expected number increases the odds of no rate hike, so the markets go up. Other than that, strap in and get ready for the ride. Just this time, make sure you know what your buy points are for stocks so you don't shoot yourself in the foot like you did this time.
Note: Due to the cash infusion, I'm now just under 25% cash and all position sizes reflect the change in portfolio overall size
Ones:
Citigroup (C, 53.28) - The stock will continue to be driven by the Fed and interest rates. It recovered almost all of its losses accrued on Monday, so buying isn't extremely attractive right now. This stock was chosen on a value basis compared to the sector combined with a long-term view that as the economy (both domestic and global, though initial focus is more domestic) picks up steam, the banks will begin to profit more from it. 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. I find a multiple in excess of one times TBV to be unlikely without a hike. My target is set to $60.50 until conditions support more upside potential in the next 12 months. Technical indicators provide the 200 day Simple Moving Average (SMA) as a potential ceiling under $54, followed by the 50 day SMA below $57. Downside risk continues to be in the $47 - $50 range. Citi is 11.6% of my portfolio.
Cedar Fair (FUN, 54.07) - Compared to most stocks, this one didn't get hit near as hard as others and bounced back strong. It's high, safe yield and growth makes this stock a safety play and a nice long term value. Charts show the stock has barely popped over it's 200d SMA, so whether this can hold will be interesting to see. Stock plays into my domestic and consumer strength themes combined with the idea that people are spending more on experience than material goods like clothes. Down side risk seems to be in the mid $40s right now. I lowered my earnings estimate due to the second quarter results to $2.65 with a fair multiple around 25 which is in between it's historic and projected 5 year growth rates of 40% and 14%. This gives a price target of $66.25. Cedar Fair is 10.6% of my portfolio.
Honeywell (HON, 100.02) - This stock is selected as a strong cyclical play to growing world economies - especially for the aerospace and automotive industries. The management team has been strong in lean times and I expect they'll do even better as the cycle becomes more favorable as well. The stock appears to be going through a pattern very similar to what we saw in October of last year, where the stock plunged below its SMAs and then charged right back up to and through them. Generally speaking, I'm expecting it to do the same again, though it might take a couple weeks to get above the 200 day SMA. 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 16.4% of my portfolio.
Twos:
Home Depot (HD, 117.52) - This stock is my quintessential play on the health of the US economy. I believe more houses will be built or bough in the coming years and the benefit to be seen by a company that executes so well, as Home Depot does, is only in the middle innings. Despite intraday crashing on Monday, the stock managed to stay above it's 200 day SMA and the chart actually looks fairly solid. The stock could still pull back around $110, though, so it's not like there's no downside potential. My guidance is now at $5.40. I expect a 20-22 multiple to be fair for a company growing earnings at 14% (plus share buybacks) and I expect the growth to continue into 2016. My 2016 price target is $130, as I don't believe market conditions will allow the price to appreciate that far before the turn of the year.. HD is 12.8% of my portfolio.
Isis Pharmaceuticals (ISIS, 51.54) - Lack of near-term catalysts are one of the biggest pain points for the company right now. They expect to maintain over $750M in cash, so we shouldn't see more dilution anytime soon, though it's something to watch out for. Also the company has been making so many deals that I agree when analysts say it may become difficult for them to be acquired. Despite the lack of ability to find buyers, nothing has really changed for the stock. My thesis of speculating on this stock remains that it has the potential to use its anti-sense technology to create many medical solutions to high need conditions with minimal side effects. It's in a sector not usually impacted by the cycles of the market, though there is risk I got into this way too late in the game. Technical indicators are a mixed bag. Death cross, over bought, favorable MACD in the medium term, while long-term indicators show signs of positive turns, but no real confirmations. I continue to learn how to value a stock on the "out years." For now, my price target would be more in line with the low $60s. Isis Pharmaceuticals is 5.6% of my portfolio.
On Semiconductor (ONNN, 9.88) - I picked this stock for its role in the automotive and industrial sectors as well as the fact that it's a top-notch player in the energy saving technology markets. I believe they provide a need for autos, and consumer goods to get more use out of electricity as well as they provide a lot of the camera and sensing mechanisms that's charging the automated car movement. On Monday, the stock bottomed out at price point areas I previously called out ($8.40 to be exact), and has started shooting higher since. These charts, too, look like how things played out in October 2014 - though that's not to say we'll get an exact repeat. Stronger dollars does hurt this company as well as it does have a lot of China exposure. While risks exists, I believe we may have finally seen the worst of things. I maintain my $0.86 earnings estimates with roughly a 15 multiple resulting in a $13 target. I think it's important to note that most people believe things are going to slow so much they're probably giving the stock a multiple in the 9 - 10 range, which puts a price target in line with the next level of support. On Semiconductor is 8.1% of my portfolio.
So now what? Is the bottom in? Have I missed my chance? I'm shocked to find many of my stocks higher than where they were last week, so I can certainly say I don't think I should be buying right now. The market has run pretty well over the last 3 days and I find it hard to believe that everything is OK now, despite very little in the overall picture changing. There are changes, though. China has sold some various Treasuries to invest into their economy and markets to help stabilize things. They also lowered some key interest rates a little. From the Fed front, as much as I'd rather not talk about it, we've heard from some people that raising rates in September is still on the table, while later this week, a couple people with more weight in the say of the matter have come out saying that the international markets do pose a factor in the decisions they make. While no one knows what will happen, we're in a position where it's not assumed the hike will happen on the 17th. Given those things, it's possible that the wild movements will slow down a little, though September is known for being a bad month, so beware of that as well.
Speaking of September, the new month begins on Tuesday, which means Labor Day is just around the corner. Next week is, historically a rather slow week. We're clearly not in normal times right now, but it's still possible we'll have a bunch of people on vacation and volumes will subside. If they don't, it's possible we will have an idea of what direction to expect stocks to go for the month - at least until the Fed speaks. Also beware that Friday is jobs day. I expect that day to be a bad news is good news day - meaning that a lower than expected number increases the odds of no rate hike, so the markets go up. Other than that, strap in and get ready for the ride. Just this time, make sure you know what your buy points are for stocks so you don't shoot yourself in the foot like you did this time.
Note: Due to the cash infusion, I'm now just under 25% cash and all position sizes reflect the change in portfolio overall size
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.
Citigroup (C, 53.28) - The stock will continue to be driven by the Fed and interest rates. It recovered almost all of its losses accrued on Monday, so buying isn't extremely attractive right now. This stock was chosen on a value basis compared to the sector combined with a long-term view that as the economy (both domestic and global, though initial focus is more domestic) picks up steam, the banks will begin to profit more from it. 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. I find a multiple in excess of one times TBV to be unlikely without a hike. My target is set to $60.50 until conditions support more upside potential in the next 12 months. Technical indicators provide the 200 day Simple Moving Average (SMA) as a potential ceiling under $54, followed by the 50 day SMA below $57. Downside risk continues to be in the $47 - $50 range. Citi is 11.6% of my portfolio.
Cedar Fair (FUN, 54.07) - Compared to most stocks, this one didn't get hit near as hard as others and bounced back strong. It's high, safe yield and growth makes this stock a safety play and a nice long term value. Charts show the stock has barely popped over it's 200d SMA, so whether this can hold will be interesting to see. Stock plays into my domestic and consumer strength themes combined with the idea that people are spending more on experience than material goods like clothes. Down side risk seems to be in the mid $40s right now. I lowered my earnings estimate due to the second quarter results to $2.65 with a fair multiple around 25 which is in between it's historic and projected 5 year growth rates of 40% and 14%. This gives a price target of $66.25. Cedar Fair is 10.6% of my portfolio.
Honeywell (HON, 100.02) - This stock is selected as a strong cyclical play to growing world economies - especially for the aerospace and automotive industries. The management team has been strong in lean times and I expect they'll do even better as the cycle becomes more favorable as well. The stock appears to be going through a pattern very similar to what we saw in October of last year, where the stock plunged below its SMAs and then charged right back up to and through them. Generally speaking, I'm expecting it to do the same again, though it might take a couple weeks to get above the 200 day SMA. 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 16.4% of my portfolio.
Isis Pharmaceuticals (ISIS, 51.54) - Lack of near-term catalysts are one of the biggest pain points for the company right now. They expect to maintain over $750M in cash, so we shouldn't see more dilution anytime soon, though it's something to watch out for. Also the company has been making so many deals that I agree when analysts say it may become difficult for them to be acquired. Despite the lack of ability to find buyers, nothing has really changed for the stock. My thesis of speculating on this stock remains that it has the potential to use its anti-sense technology to create many medical solutions to high need conditions with minimal side effects. It's in a sector not usually impacted by the cycles of the market, though there is risk I got into this way too late in the game. Technical indicators are a mixed bag. Death cross, over bought, favorable MACD in the medium term, while long-term indicators show signs of positive turns, but no real confirmations. I continue to learn how to value a stock on the "out years." For now, my price target would be more in line with the low $60s. Isis Pharmaceuticals is 5.6% of my portfolio.
Pepsico (PEP, 93.53) - I chose this stock for the strong management, it's strong and continually growing dividend, and their focus to provide food people want - be it healthy, natural, or the classics. If interest rates do end up going up or the dollar regains strength, this stock will be back under pressure. However, with much lower oil prices, it has much to gain from a cost-control perspective. Just keep in mind it usually takes 6 months to see the impacts. I know this stock was registering around the $84 mark on Monday and it has since recovered. There are currently ceilings just over the $96 mark and we might have some support around $90 under our current conditions. For now, I still allow a 22 multiple on the stock with my guidance for 2015 to be $4.50. This gives my upside target at $99. This is likely to be more of a bump in the road for now, so long as organic growth can maintain in the upper single-digit areas. Right now, I feel range bound in this name, but it's a solid, reliable name. PEP is 10.2% of my portfolio.
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