Weekly Portfolio Summary

It has been another rough week for my portfolio as it continued to under perform the S&P 500, which is having it's worst start to any year ever.  Sadly, there isn't really much solace in the fact that you're doing even worse than that.  My portfolio was down 5.4%, compared to the 2.2% for the S&P 500.  My biggest pain points were Ionis, Citigroup, and Cedar Fair (believe it or not).  Ionis represents people taking their winnings and avoiding speculative-type stocks in this brutal kind of market.  It can be painful to take this hit, but I've been anticipating it and waiting for a chance to add to my position.  Citigroup is another story.  I filled my position in it last week, only to watch the stock plummet - even after its earnings beat of expectation, it was hammered mercilessly compared to its brethren.  Finally, Cedar Fair is another position I'm trying to fill, so the downside isn't bad, though it is a little surprising.

Despite my poor performance, the sentiment in the market is so awful I feel compelled to add some more positions where it makes sense.  I won't time the bottom most likely, but I should be well positioned, providing there isn't something catastrophic that I haven't picked up on yet.  As such, I added to my position of Cedar Fair this week, which appears relatively safe with a US based consumer, and lots to gain from lower gas prices.  Add into it a 6% yield, and you're getting paid handsomely to wait for better times.

In the week ahead, my portfolio has no earnings announcements.  Monday, the market will be closed to observe Martin Luther King day and after Friday's drubbing, it'll be interesting to see how things respond.  Will overseas markets get crushed, leading us to follow in suit in a game of chicken or the egg?  Will we start down big and rally into the close, in some sort of indication that maybe we've capitulated?  Well, I doubt that one unless something develops as a catalyst for us to build off of.  The holiday could be some form of barrier from another "black Monday," but I really don't feel we're set up for something like that right now either.  That said, it just doesn't seem like we're done going down - no matter how much I wish we were.  All we can do is wait for Tuesday and see how things shake out, using my positioning below accordingly.

Speaking of which, you'll likely notice I've made some dramatic changes below.  I'm re-positioning myself for a bear market, meaning I need to look more to what I will get rid of to raise cash for the stocks I have the absolute most confidence in with these much more difficult scenarios to be successful in.  As such, I'm going to take a more pessimistic stance.  This includes the elimination of all stocks being considered a one at this time, while also considering which I'd get rid of - loss or not, to be better positioned for a turn around.  Until we get to a point where it seems completely crazy to sell, there can't be a one.  Unless I sell or the market found its floor, odds are I'll have something I'm ready to toss.  When the market is tough, I need to get tough too.

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 a combination of 12-18 month outlook on stock direction and market driven need for capital preservation or appreciation.  The ratings may not necessarily directly results in moves I make due to financial positioning and cost basis.

Twos:
Citigroup (C, $42.47) - 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.  Unfortunately, the current market conditions are fearful of banks and systemic risk, which I don't believe exists.  For Citigroup's stock to stabilize, we'll need to see oil prices stabilize, some more clarity of the assets and risk they're holding in the oil patch, and China to stabilize.  It seemed the conference call created some uncertainty in these areas and is my belief to be why the stock was particularly beaten.  Despite the rate hike, bonds haven't been getting stronger and there is little confidence the banks earnings power will increase at this time.  In all honesty, there is little in the charts that look good right here either.  Citi has broken all long-term trends to the down side and the only saving grace I can see right now is a market reaching toward an oversold point.  There isn't a clear floor of support at this time, though I think the $40 point is possible.  If not there, it just looks like 2011 lows are an possibility - no matter how unreasonable it seems.  I still think there is multi-year upside for the company, though, once current conditions stabilize.  I have estimated TBV to grow 5% in 2016 to a price that's a little below $63.75.  Current conditions make me believe that the best price C can get is 0.9 times TBV, though if banks become favorable again, I believe that multiple to be more like 1.4 times.  As such, my price target is currently at $57.50.  Citi is 14.7% of my portfolio.

Cedar Fair (FUN, $50.82) - 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.  Suddenly, this stock has been getting tossed out regardless of that fact on no real news or reason - which leads me to believe it's an ETF based sell off.  The company is essentially off of business until late spring, so outside of earnings, I don't anticipate much news to drive the stock.  Just don't let that lull you into a sense of complacency either.  Currently, the capital spend is fairly heavy to achieve growth, but the results have been positive.  This will need to be watched.  With oil down so much, it becomes more likely they would benefit from more cash in consumer's pockets.  The stock blew through it's Aug 24 lows, to the $48s I referenced last week, before rebounding some.  It doesn't feel completely like we've found a bottom at this time, though the $45 - 48  range is still strong support..  Considering this is a MLP, the stock has held up well, despite how MLPs are getting hammered.  Uncertainty with the Fed looms over the stock some, despite its strong yield.  More clarity regarding if/when they'll do more hikes would be helpful, but not something to count on right now.  I am looking for earnings growth to get better again, but for now am playing a conservative $2.80 estimate for 2016.  With interest rates rising, I want to get more conservative with my multiple, so I'm going to lower it to 22 times earnings, putting my price target at $62.  I look to buy more below $50, hopefully seeing some stability or support at the same time.  Cedar Fair is 14.1% of my portfolio.

Threes:

Home Depot (HD, $119.23) - 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.  I have a 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, and has started to take a little bit of a beating.  The charts are negative now, however we're approaching overbought levels, as 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.  We have now reached the 200 day moving average, which has been showing signs of support and has, historically been strong support.  If it breaks through, we could still see August 24 prices of around $114.  Anything below the 200 day is unreasonably oversold and potential for excellent buying opportunities, for those interested.  As I'm way too far above my cost basis, I won't participate in more purchases.  HD is 13.8% of my portfolio.

Honeywell (HON, $97.26) - 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 problem is the cycle feels less favorable right now.  I have stated in my annual review that I believe that automotive is about to stall out in sales.  Honeywell has had a bit of success in this space with their turbo chargers and that's likely to get weaker.  However, they are diversified and I expect other later cycle segments to improve when we see more proof of economic expansion. My estimate for 2016 is $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.  I'm hoping the stock can hold around $97, however, the Aug 24 low is about $94 (it went below $92 in September) and that is certainly in play.  Technical indicators are bearish, though a couple have crossed into oversold territory.  Given the market, I would expect maybe a bounce and then move lower again, until that overall sentiment changes.  HON is 16.9% of my portfolio.

Ionis Pharmaceuticals (IONS, $43.88) -  A new year has brought a significant change in how this stock has been performing.  As we closed out the year, the stock was taking off.  Since then, it's been downhill with a oversold rally here or there.  While much of this is driven by market sentiment, such that people started raising cash buy selling stocks that had moved, a new risk has surfaced as well.  As the year opened, the biotech sector currently has the most companies looking to do an IPO, about 20, if I recall.  If these really happen, we'll see quite the stress on existing companies as big money managers usually sell off holdings they have to raise cash to get a "big win" out of an IPO.  This is what's known as an oversupply of stock.  Every time this happens, biotech takes at least a 20% hit, minimally.  Oftentimes it is more in the 40%-50% range (especially on an individual stock basis).  Since I'm not fully positioned, this can create buying opportunities.  These factors and the speed of rate hikes will be things to watch for this  year.  The charts have turned ugly, exploding through the 200 day and pushing lower.  The $40 - $41 range appears to be support, though there's a chance the stock holds a floor right at this price as well.  The stock has also reached oversold territory in a couple spots.  I'm now well below the $50 mark I spoke to, but the market doesn't seem favorable to speculation right now, so I'm anticipating more down side.  I'd rather miss the bottom and catch it going up at this point.  On the "good news" side of the world, the stock has reached those Aug 24 prices I continue to speak of.  However, I already have examples where that price doesn't seem to be holding (and this stock went lower after that time as well).  I have a $70 target for 2016, noting that they may not have as much in revenues as this year and there will be a lot more expenses going into getting those phase 3 studies completed.  Ionis Pharmaceuticals is 7.6% of my portfolio.

Pepsico (PEP, $93.93) - 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 new environment.  I see two benefits for this company right now.  First, we're nearing the point where the stronger dollar won't be the impact on earnings that it was because strength has leveled off.  This will provided better year over year comparisons.  The second thing is the benefits of lower oil and how much that will increase the company's margins.  Longer term, multiple rate hikes do pose a threat in how favorable the stock is in the overall market, but worrying about that now is getting a little ahead of myself, I believe.  I believe I can still get away with an earnings multiple of 22 times earnings, with my guidance for 2016 $4.86.  This puts my target at about $107.  Technically, the stock has been relatively flat for the last year.  There are lots of signs of consolidation and resting before what is typically a new leg higher.  We have broken through the 200 day as well as my $94 point, leaving us only with an August 24 lower risk of $90.  I didn't think this would go down that far, but anything is possible at this point.  The market needs something to turn sentiment positive and there doesn't seem to be anything out there to help.  That said, I believe the prices we're starting to see are prices that pose much more value than risk.  PEP is 10.9% of my portfolio.

Fours:
On Semiconductor (ON, $8.22) - I'm now in the red on this holding, but when I look at it, I see much more risk that I started calling out and it's a reason why this stock has been hit so hard over the last few weeks.  Anything tied to cell phones, an auto market that's likely peaking, stocks that have large exposure to China, horrendous earnings report out of key Semiconductor, Intel - all of these represent why this stock is under such pressure.  I've called that I believe the stock can go to $8 and we're almost there.  It's possible it could go much lower too.  I'm not an expert.  But given the fact that this is the time of year that stocks like this typically roar, there is very little favorable about this right now.  I might be much better served to sell now, let the market find solid ground, and then see what's going on with this company.  That said, this would be more of an action for capital preservation and cash raising than true belief that I need to get out as I've seen with other stocks.  Long term, I have a lot of faith that they can reach $12 or higher still - even with the called out risks.  But we might be at a point where we're just simply fighting too much and there are easier, better opportunities to put this cash into.  My 2016 guidance is $0.92 and I'm giving an earnings multiple of 12 due to potentially slowing growth in some key areas.  The decision on Fairchild Semiconductor happens this week and could be a pricing catalyst to the stock.  Outside of that, the company won't announce fourth quarter earnings until mid-February, most likely, so we won't have more to go off of until then.  I'd like to hold onto the stock until then, but the market may not allow it.  Technical indicators are bearish, but appear to be reaching what I believe are limits.  My downside risk is about $8 while my price target is currently at $11.  ON is 7.1% of my portfolio.


Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.