Weekly Portfolio Summary

This will be my last portfolio summary posting for the year due to the holidays and my focus around organizing a year in review posting. I expect to be back to my normal schedule by January 8.

This was quite the interesting week, that's for sure.  It bubbled and boiled for the first two days in anticipation of the announcement out of the Fed.  On Wednesday, we had our crescendo as stocks launched off of the actual announcement, and then things fizzled out and fell off the table on Thursday and Friday, only for the major indices to  end up lower on the week by 0.3%.  Fortunately, my portfolio fared a little better, ending the week up 1.6% thanks mostly to Honewell and Isis Pharmaceuticals.  Honeywell surged higher early in the week off of their investor conference call.  Honeywell's in-line guidance for 2016, while other companies, like 3M, are guiding lower.  The improved price from ISIS came from no new news, while they did announce the start of a phase 2 study for their TTR rx drug.  Additionally, they announced on Friday that they are changing their company's name to Ionis Pharmaceuticals and will change their ticker to IONS at the open of Tuesday's market.  The purpose behind this is just to remove the noise, and potentially bad sentiment, related to the company by having the same name as the Middle-East militant group.  The other encouraging thing to see was that as the indexes went down, my holdings weren't going down as much.  Nothing to hang a hat on, but it usually indicates there's less desire to sell those holdings, making them more likely to be the ones to pop first and most when things go positive.

That said, the statement from the FOMC confirmed everything we expected, raising the Fed Funds Rate (the rate at which banks lend to one another) by 0.25%.  They also stated that additional raises would be gradual, essentially stating that they will wait to see the impact of the raise on the economy before they act again.  While the market surged off of this announcement, it was only a 1-day euphoric event.  After that, the market sank again as bonds and oil came back into the picture.  The other thing worth of noting is that we are now in a new environment where interest rates rise.  While it's early, given the nearly 0% rate we were at, we can no longer expect stocks to be as sure a bet as had been the case for the last 6 years.  I'll be factoring this more into my year-end review and new year setup over the next few weeks.  

We are now entering the holidays with Christmas coming up and New Year's after that.  These weeks are usually riddled with low volume and a combination of 2 events.  First, you have institutions selling their bad bets and taking their tax losses.  The second are those same institutions trying to load up on stocks that have performed well so people can see they are positioned correctly.  The first will likely be wrapping up about any time now while the latter is, typically, more likely to happen the remainder of the calendar year.  I really feel this is a time to asses holdings.  It could mean selling holdings and raising cash, if you feel that's the appropriate move.  It's not as likely to mean buying more positions, unless you get some serious deals.  Given my holdings and prices, I'm not seeing too many opportunities for buying, but who knows what will happen.

And with that, I wish everyone a Merry Christmas, Happy Holidays, and Happy New Year!  May we have a profitable year in 2016 as well.

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.

My Cash position is currently about 21.5%

Citigroup (C, 51.21) - 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. While rates have hiked, I'm not yet convinced that things are strong enough to justify a multiple greater than 1 time TBV.  It will be nice to understand how much more profits this 0.25% means for the company.  My target is still at $60.50 until conditions support more upside potential in the next 12 months.  The stock appears to continue trading sideways, as we look for a catalyst that will make banks more desirable.  The first line of support is around the $50 area and is a key point I'm watching and looking to purchase at/under.  The high yield bond situation is something to watch.  Despite the banks not being allowed to have much skin in that game, they appear to be trading with news around junk bonds and oil companies going out of business.  In the end, we have an extremely strong base around $47 and there are a lot more long-term positives for the banking sector than negatives, creating some potentially great buy points for the long-term.  Citi is 10.8% of my portfolio.

On Semiconductor (ON, 10.01) - 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.  Add to this impacts of a higher interest rate and we are seeing some additional risk.  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, however, it lost its steam with the markets and being outbid for Fairchild Semiconductor.  While I still have faith that the company can surge again, my skepticism is really starting to challenge my thesis.  I don't see anything in the charts indicating that this stock is ready to make any kind of move from where it's been.  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 7.9% of my portfolio.

Cedar Fair (FUN, 52.51) - 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 have turned negative, however, there are many indicators showing signs that this stock is reaching a point where it has bounced consistently in the last 5 years (RSI, Ultimate Oscillator, Williams).  However, those last 5 years did not have a rate increase and that is worth noting.  Right now, the stock needs to hold $51.25, otherwise it could go down to the $47-$48 range.  Considering this is an MLP, the stock has held up well, despite how MLPs are getting hammered.  The favorable message from the Fed makes the income portion of this stock still strongly favorable with its 5.8% yield, so long the principle isn't at risk.  I am looking for earnings growth to 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 10.3% of my portfolio.

Honeywell (HON, 101.83) - 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.  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 and an increase of rates in the US won't help with currency translation.  It's that inability for further earnings growth that appears to be the headwind for now.  I'm seeing some technical signals that could be shaping into indicators for the next swing upwards, but in this volatile market, nothing is clear at this point.  We have been seeing higher lows, so the price to watch now is about $98.  Any break of that is a negative sign.  Long-term charts are showing that this is a healthy pullback, but we need to watch the MACD there as well.  Guidance is now at $6.10 for 2015.  The guidance provided was below my estimates, with a range of $6.45 - $6.70.  Analysts were expecting $6.52.  Given the details and environment I'm going to lower my estimate for 2016 to $6.55 with a 17 multiple.  That puts my 2016 target at $111, though I believe a favorable market can push things up to $120.  Downside risk I'd say is around $97.  HON is 16.1% of my portfolio.

Isis Pharmaceuticals (57.84) -  Again we get to see what kind of volatility a true speculative stock can have.  Were I not looking to increase my position, I would hope that I would've seen the signs it was time to step away until we reached better buying prices 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.  That said, I'm also seeing questions about negative side effects that have been found in mice and baboons being something that makes this technology go bust.  It's a risk to watch for, but so far does not appear to be something that will crush the company any time soon.  I still feel this is going to be a very good stock to hold for the long-term due to the therapies they produce in the future years.  The future value of those productions do come into question a little right now due to any rate hikes that may come.  The technicals have fallen apart as medium term shows some strength, while long-term appears a little more subdued.  I see potential floors at $53, $50, and about $45.  I'm have 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 9.2% of my portfolio.

Pepsico (PEP, 97.90) - 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, which we're clearly in while the markets digest our likely new environment.  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.  This isn't to say that the company is bad, just that it won't be able to grow as fast as other areas, and people seek growth.  Before that happens, the company will likely exceed expectations due to lower input costs (driven by lower oil) - especially if rates aren't expected to continue to grow a lot.  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.  The stock has started to react in a way I would expect.  We're reaching the $96.50 support of the 200 day moving average and will have to see how that holds.  At this point, I see downside risk of $4-$5, while upside potential is about $6.  PEP is 10.3% of my portfolio.

Home Depot (HD, 130.29) - 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, with salary growth in the economy, 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 early on 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.  That said, if rates increase rapidly, I would expect for a more rapid negative impact to the stock, as it's purpose is to focus on future earnings.  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.  As expected, the stock has been pulling back, with help from the weak overall market.  That said, it's been one of the best performers over the last two weeks despite that pullback - making it a potential target for buying into the year end.  Long-term trends show the stock taking a breather from overbought levels, but both medium and long term indicators seem to say this pullback is quickly reaching a "too far, too fast" point, indicating we'll likely bounce or flatten soon.  The investor conference has completed and I need more time to review it, though I can say the long-term plan didn't seem to have much impact on the stock's behavior.  The Fed's decision to raise rates appears to have had little-to-no impact on the stock overall, as it went down less than the indexes, overall.  People's views on housing and retail in 2016 will determine if this stock starts to fall again at the start of 2016, or if it stays strong.  HD is 13.8% of my portfolio.