Sunday, September 6, 2015

Weekly Portfolio Summary

Last week was a rough one as we headed into Labor Day weekend.  My portfolio fell 1.8%.  Normally, this would leave me disappointed, but the truth is I'm feeling pretty good.  But that's because the S&P 500 fell almost twice that.  Volatility reigned supreme and there was more pressure to the down side than up.  Additionally, the jobs number came in lower than expected, but wages were up slightly and the employment rate was down.  The betting on a September hike increased, and with it, there seems to be a lot of doom to come to stocks when that happens, based solely on the action.  To me, this seems more like a Paquiao vs. Mayweather fight - tons of hype and once it hits, a whole lot of nothing.  If the Fed raises a quarter percent, then what?  You're going to take your money out of stocks and put it into a .5% CD?  Not likely.  Should this encourage the 10 year treasury to get near 3% we might see some competitive pressure there for some safety sitting in utilities, MLPs, REITs, and high yielding stocks, but you're not likely to see real pressure until that gets closer to 4% I wouldn't think.  Additionally, if rates are expected to continue to rise, there is a risk to loss in capital as rates go higher, though if purchased through a fund with a variety of bills and bonds, the risk becomes more mitigated.  The only time that makes a lot of to me, in regards to buying into bonds is when you believe we're reaching a point where rate hikes are going to become a significant problem to the growth of the economy, resulting in a slowdown, recession, or depression.  That's right, I'm saying you want into bonds and treasuries when you expect rates to fall, not rise, though, there likely is a point in time where the rates of such investments provides limited capital risk with a yield that is adequately larger than inflation and taxes, thus providing you protection on assets while capping upside potential.  Anyhow, I'm no a treasuries/bonds expert.  This is just my understanding to date.  Moving on.

Despite the fact that September started last week, it really was nothing more than an extension of August, due to the holiday.  I expect what we see during this week will give us a good feel of what to expect for the whole month of September and frankly, I have absolutely no clue how things will pan out.  Right now, all of my stocks, save Home Depot and Pepsico, are at least 10% off their highs.  This is otherwise known as in corrective territory.  I am looking for opportunities to buy a number of stocks right now, but prices have to come down to where I want them, with a current expectation that things are not done moving down yet.  Those stocks I'm looking to buy into include Citi in the $47 - $50 range to fill my position, Cedar Fair below $52.50, preferably around $50 to complete that position, Isis Pharma under $48, and Pepsico under $84.  If I feel a need to raise cash, I'm going to take my lumps on my On Semiconductor stock.  Now that all the pros will be back from their vacations, it will prove to be interesting to see how this will begin playing out.  Whether they feel their backups were too negative, or whether they'll pile onto the strategy will be a sight to see.  Right now, I feel nothing in strategy changes until we hear from the Fed and/or when we start getting third quarter earnings information.  That's essentially 2-4+ weeks out.  Buckle in, there's going to be a lot of turbulence on this flight.


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:
Citigroup (C, 50.59) - 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 11.2% of my portfolio.

Cedar Fair (FUN, 54.44) - 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, as does it's primarily domestic focus.  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 10.9% of my portfolio.

Honeywell (HON, 96.59) - 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 16.1% of my portfolio.

Twos:
Home Depot (HD, 114.42) - 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 12.7% of my portfolio.

Isis Pharmaceuticals (ISIS, 52.10) -  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 5.8% of my portfolio.

On Semiconductor (ONNN, 9.66) - 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.

Pepsico (PEP, 90.92) - 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 10.1% of my portfolio.