Weekly Portfolio Summary
With a holiday shortened week, there wasn't a lot really going on. Trading was light on volume, and events were virtually non-existant. We have entered a period of time in the market that has been heavily weighted towards positive gains, though not huge gains. We see more geopolitical turmoil again, though not enough to make energy surge higher. Retail in the US is strong, but only in pockets as warm weather makes for difficult apparel sales. Housing appears to be strong and there's the looming interest rate discussion coming up as well.
The only big event coming in the week ahead will be the November jobs results, which will be announced on Friday. There will be other government numbers published through the week to keep an eye on, but they typically have little impact past a day or two's worth of trading.
Ones:
Citigroup (C, 54.21) - The stock will continue to be driven by the perception of where Fed and interest rates are heading and when. 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 rate 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) and 50 day SMA as ceilings in the low-to mid 50s while we still have solid support around $50. The Fed's next meeting is 2 weeks away. If they raise rates, the stock is likely to go higher, however, if they do not, the stock still has more downside to it right now. Recently, the market has been unfavorable to the financials, an indication that they believe the rates won't go up. We have to continue to gauge what the market is saying/doing. Technical indicators are fairly flat to down right now, but it wouldn't take much for things to turn. Citi is 11.1% of my portfolio.
Honeywell (HON, 104.06) - 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. After having recovered from the fall selloff, the stock has started to fall backwards again on a strengthening US Dollar. If global economies are getting worse, this international play is going to get thrown out no matter how well it's performed over the years in bad times. The charts aren't showing much indication in either direction, allowing it to essentially consolidate around it's 200 day SMA. Guidance is now at $6.10 for 2015. They provide 2016 guidance on December 16. Until then, I'm guessing another year of 10% earnings growth, putting my 2016 earnings estimate at $6.72. I'm lowering my multiple from 18 to 17 due to pressures of the US Dollar and US Interest rates (should they go up). That puts my 2016 target at $114.25, though I believe a favorable market can push things up to $120. Downside risk I'd say is around $97. HON is 15.9% of my portfolio.
Isis Pharmaceuticals (62.46) - After a slew of news releases on study results and drugs entering new phases, this stock has found good graces within the market once again. There are now 8 drugs in phase 3 with many many others coming up behind. All phase 3 studies are expected to be completed in 18 months or less, lining them up for approval and commercialization. With as strongly positive (and they were very strong) as these phase 2 studies have resulted, the technologies Isis use as well as the results they're driving is appearing to be exceptionally positive for long term indications and results. While the stock will swing wildly (that's what makes it speculative), I still feel this is going to be a very good stock to hold for the long-term for what it will be able to produce in the future years. All technical indicators appear to be directionally positive, but there seems to be little doubt that things have tapered off into serious consolidation patterns for now. The stock has reached my previous price point for 2015, but I feel these results really start to boost forward looking opportunities. I'm placing a $70 target for 2016, noting that they may not have as much in revenues as this year, due to the $90M deal with Bayer we experienced as a tough compare, and there will be a lot more expenses going into getting those phase 3 studies completed. Isis Pharmaceuticals is 9.6% of my portfolio.
Pepsico (PEP, 100.74) - 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. It's also a nice safety stock to have in volatile and rough times. While interest rates will be an indicator of strength, I think it will actually be the strength of the economy that forces a loss of favor with this stock and causes industrials surge. Before that happens, the company will likely exceed expectations due to lower input costs (driven by lower oil) and a cap to the strength of the US dollar due to continued low rates for now. Just keep in mind it usually takes 6 months to see the impacts. For now, I still allow a 22 multiple on the stock with my guidance for 2015 to be $4.54 and $4.86 for 2016. This puts my 2016 target at about $107. This is another stock that is not reacting the way I would expect if everyone expects rate hikes, which makes me a little nervous The stock does show some technical strength in both the medium and long-term views. 2015 could've been a major consolidation in preparation of another move higher, but it's way too hard for me to tell how accurate that might be. PEP is 10.3% of my portfolio.
Threes:
Home Depot (HD, 134.74) - This stock is my quintessential play on the health of the US economy. I believe more houses will be built or bought in the coming years and the benefit will be seen by a company that executes well, as Home Depot does. Even if rates do rise, I expect this stock will still perform well as people will be rushing to buy their homes before rates get too high, and a strong economy will result in ongoing home improvements for a better home experience. The stock has now hit my 2015 target of $130 and I have just set a new 2016 estimate for EPS of $6.16 and a price target of $148. The price has shot well above the 200 day SMA so far that I feel that the stock has gotten too hot and is likely for a pullback. Had I more shares, I'd consider taking a little off in anticipation of that move. Long-term trends in the charts do appear that we are still fairly early in the next leg up. An investor conference and the Fed rate hike decision in December are key things to watch for. HD is 13.7% of my portfolio.
The only big event coming in the week ahead will be the November jobs results, which will be announced on Friday. There will be other government numbers published through the week to keep an eye on, but they typically have little impact past a day or two's worth of trading.
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, 54.21) - The stock will continue to be driven by the perception of where Fed and interest rates are heading and when. 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 rate 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) and 50 day SMA as ceilings in the low-to mid 50s while we still have solid support around $50. The Fed's next meeting is 2 weeks away. If they raise rates, the stock is likely to go higher, however, if they do not, the stock still has more downside to it right now. Recently, the market has been unfavorable to the financials, an indication that they believe the rates won't go up. We have to continue to gauge what the market is saying/doing. Technical indicators are fairly flat to down right now, but it wouldn't take much for things to turn. Citi is 11.1% of my portfolio.
On Semiconductor (ON, 10.73) - 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. Items to watch closely are auto sales, and China's economic indicators. Third quarter results talked about a slower than expected automotive segment, which is worrisome, given how this is 31% of the company's revenues, and China's slowdown was a problem - though it may have flattened out now. The stock has gone into it's positive cycle in the charts, where we tend to see it make about 3 or 4 big jumps straight up with a few minor pullbacks in between. It's performed its first jump and has pulled back after the company announced the purchase of its competitor, Fairchild Semiconductor. Now the indicators are showing signs of another move up coming soon, so if we get any pullback, it's likely to be your best chance. My 2015 guidance was lowered to $0.84 in 2015 due to macro pressures and supply chain resets and my 2016 guidance is at $0.94. I believe a fair multiple is 14 times earnings, given the current 12% EPS growth rate, though if we do see a turn in macro trends, the multiple could expand to 16. My 2016 target is $13.25 (not including room for the aforementioned multiple expansion). On Semiconductor is 8.2% of my portfolio.
Twos:
Cedar Fair (FUN, 52.92) - The focus of this stock is a sense of safety as the stock features a good dividend as well as decent growth that coincides well with the strengthening US economy. The time of year that the company can make money is basically at a close, so I don't expect a lot of news that is likely to impact the stock for the next 6 months. Just don't let that lull you into a sense of complacency either. The company is spending fairly heavily to achieve growth, but the results have been positive. This will need to be watched. The charts are becoming more and more favorable as there is a setup for a golden cross (50 day SMA crossing over the 200 day SMA) while momentum, MACD, and slow stochastic measurements are all gaining strength. I do have some worry that this move up appears to be losing strength, though. I am hopeful that earnings growth will get better again, but for now am playing a conservative $2.80 estimate for 2016. Allowing for a continued multiple of 24, I have my 2016 price target set at $67. Cedar Fair is 10.8% of my portfolio.Honeywell (HON, 104.06) - 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. After having recovered from the fall selloff, the stock has started to fall backwards again on a strengthening US Dollar. If global economies are getting worse, this international play is going to get thrown out no matter how well it's performed over the years in bad times. The charts aren't showing much indication in either direction, allowing it to essentially consolidate around it's 200 day SMA. Guidance is now at $6.10 for 2015. They provide 2016 guidance on December 16. Until then, I'm guessing another year of 10% earnings growth, putting my 2016 earnings estimate at $6.72. I'm lowering my multiple from 18 to 17 due to pressures of the US Dollar and US Interest rates (should they go up). That puts my 2016 target at $114.25, though I believe a favorable market can push things up to $120. Downside risk I'd say is around $97. HON is 15.9% of my portfolio.
Threes:
Home Depot (HD, 134.74) - This stock is my quintessential play on the health of the US economy. I believe more houses will be built or bought in the coming years and the benefit will be seen by a company that executes well, as Home Depot does. Even if rates do rise, I expect this stock will still perform well as people will be rushing to buy their homes before rates get too high, and a strong economy will result in ongoing home improvements for a better home experience. The stock has now hit my 2015 target of $130 and I have just set a new 2016 estimate for EPS of $6.16 and a price target of $148. The price has shot well above the 200 day SMA so far that I feel that the stock has gotten too hot and is likely for a pullback. Had I more shares, I'd consider taking a little off in anticipation of that move. Long-term trends in the charts do appear that we are still fairly early in the next leg up. An investor conference and the Fed rate hike decision in December are key things to watch for. HD is 13.7% of my portfolio.
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