Weekly Portfolio Summary

Well, for the first time in the new year, I can say that the week wasn't a complete disaster, though it sure felt that way early on.  Back on Wednesday, the markets were down over 3% only to suddenly turn around and go up.  The market has been getting called oversold for some time and when oil shifted to a new forward month in the futures, it lifted dramatically, carrying the market with it.  Does it feel natural or normal?  Is the market acting like it should, fundamentally?  Nope, not at all, but that's been par for the course for some time now.  The big question now is whether this is just an oversold bounce or if the market has actually bottomed out and is feeling better.  As of Friday's close, oil was back above $32 - well above a commonly desired $30 mark.  The Chinese stock market is showing signs of flattening around the 2800 mark and stabilizing as well.  However, this is likely due to government propping of the market.  Can it continue and change sentiment?  The geopolitical chaos as died down - at least in terms of front page news.  So at this point, 3 of the keys to a market turn around appear to be getting more healthy.  What we're still missing is the Fed.  So far we've gotten the usual mixed comments from Fed governors - either that the deflation in oil prices have a significant impact to overall inflation rates and that the Fed should be able to calm down on rate hikes and continue to watch the data to others saying the Fed needs to proceed with the previously stated four rate hikes.  Clearly, the market is more in favor of the former rather than the later.

What can be so frustrating to those who base their decisions on fundamentals is that all of this macro guessing and forecasting is completely hiding the fact that we're in the middle of another earnings season - this next week being one of the busiest - and according to companies, things aren't all that terribly bad.  So far, 73 companies in the S&P 500 have announced their 2015 fourth quarter earnings results.  Of that, 53 companies beat, 16 missed, and 6 met analyst expectations.  Many of these beats (34%) were financials, yet that has been the sector that has been one of the hardest hit over the last couple weeks.  Not everything is about what happened last quarter, though.  Stocks are meant to represent the future earnings power of companies and 2016 estimates have certainly gotten more conservative.  2016 S&P earnings estimates were at $125.56 on Dec 31, now we're down to $123.  At Friday's closing price, that puts the S&P 500 at 15.5 times those estimated earnings.  Many would call that fairly priced, in historic terms.  So with estimates getting trimmed yet, and lots of uncertainty, I find it hard to expect the market to start launching higher without some sort of catalyst.  Speaking of which...

In the week ahead, we have announcements coming from the Fed in the middle of the week.  This is the one potential catalyst I see in front of us.  At this time, the market is doom and gloom everywhere you look, despite some of the underlying truths I described above.  What the Fed has the capability of doing is subduing the fears of recession - at least for the US - by softening some of the statements they've previously made regarding 4 rate hikes this year.  Should they go back to being more data dependent, should they indicate that there are signs of slowing as part of the impacts of the global economy, and should they indicate that the deflation of oil has dramatically reduced signs of inflation, I truly expect the stock market to take a sigh of relief, and show some honest strength in a rally.  By no means do I expect the rally to take us to new highs right now, but I do believe it will be a significant factor to the bottoming process, along with the stabilization of both prices in oil and the Chinese stock market.

The second event in the coming week is that portfolio name, Honeywell will report their 2015 fourth quarter results on Friday.  Peer company General Electric reported this Friday and results weren't bad, but organic growth wasn't what people were hoping for, coming in at 3%.  To me, that's a little concerning for Honeywell.  Typically they've had organic growth around 3% as well and I have a feeling we will see something lower than that.  The stock has been a little beaten up, down almost 9% from its 52-week high, but I don't think that's going to have been enough, should they not deliver.  Earnings and revenue estimates are $1.58 and $9.98B, respectfully, but keep an eye out for that organic growth too.

New feature: I had decided that I need to share some additional information when putting this together.  People sometimes get things right, and sometimes they're wrong.  In the event anyone reads this, I think they have to know how my picks are panning out against the words that I type.  I also feel this will help allow me to understand my actions and behaviors as I review things later.  As such, I've added a new data point to each holding below.  After the stock's symbol and closing price, you'll also see the holding's performance in my portfolio, including the impact of fees.  You'll understand my winners, my losers, and how my commentary fits to each.  Keep in mind, just because the stock is down doesn't mean I haven't been right in what I've said or in my approach.



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, $41.06, -1.7%) - 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 stock is clearly oversold on the short term at the very least.  The $40 mark seems to be a good spot for the current floor and I can see a bounce from over sold territory taking us to around $45.  As you can see, my portfolio holding is now in the red, which is a result of me continuing to buy positions that are above my cost basis - a painful lesson to learn in short-medium term trading.  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 14.1% of my portfolio.

Cedar Fair (FUN, $53.19, -3.65%) - 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 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.  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 consumers' pockets.  After a brief selloff, the stock has stabilized again, going above the $52.50 mark that has been a line of support the last 6 months.  Also, even in the deepest of selloffs, the stock couldn't get below $50 again (where I was hoping to buy more). It's hard to say we found a bottom at this time, though if we do drop below $50 again, the $45 - 48  range is still strong support.  Many technical indicators show a turn to bullishness in nature at best, and more of a flattening around these prices at worst.  My guess is if the market creates another selloff, this stock will hold above $50.  Uncertainty with the Fed looms over the stock some, despite its strong yield.  Should the Fed make comments regarding patience and not pressing forward with rate hikes, I think this stock will jump higher yet.  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 (5-year earnings growth estimates are 25% annually, so I'm essentially estimating the stock to an extremely cheap 0.88 PEG ratio), putting my price target at $62, but noting that it has a lot of potential in a favorable market.  I look to buy more below $50, hopefully seeing some stability or support at the same time.  Cedar Fair is 14.6% of my portfolio.

Home Depot (HD, $122.76, +97.6%) - 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 as 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.  Over the course of the week, the stock blew through the 200 day average and tested the August 24 prices of around $114.  After that, the stock has surged well above the 200 day line again and I believe this will continue to be a line of support.  Given the current news we have to work with, 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.  I think the stock has shown the action necessary to indicate it has a bottom in place.  The stock can go all the way back down to $114 for a short period of time, but I believe we've reached levels that have some proven and reliable support.  Due to this, I've upgraded the stock.  HD is 14% of my portfolio.

Pepsico (PEP, $95.85, +32.58%) - 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 dollar strength has leveled off.  This will provide 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, it seems.  I believe I can still get away with an earnings multiple of 22 times, 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.  Additionally, most indicators are showing a bounce from oversold levels and it looks like we could be filling out a reverse head and shoulders pattern that started forming back in June.  That said, we're just as likely to be filling out a regular head and shoulders pattern if the stock continues to rally.  Though we did break through the 200 day moving average, we quickly recovered back above it without hitting the Aug 24 levels.  All of these are typically bullish indicators, with some potential to push to $110 in the next 6 months.  It's a battle right now, but things are looking more favorable than not.  This is a stock that is building my belief that we've reached a bottoming process.  I won't say the stock can't go a few dollars lower, however, I believe we have support overall in any further selloffs - at least until earnings are announced.on February 11.  As such, I have raised its rank.  PEP is 11% of my portfolio.

Threes:
Honeywell (HON, $97.82, +129.86%) - 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, as it has been, generally.  However, the Aug 24 low is about $94 (it went below $92 in September) and that is certainly in play yet as all other technical indicators aren't showing much other than we're in an oversold bounce.  Given the market, I would expect maybe the bounce to continue and then move lower again, until that overall sentiment changes.  Clearly, the earnings announcement on Friday will be a key factor into how this plays out, as will the Fed comments this week.  HON is 16.7% of my portfolio.

Ionis Pharmaceuticals (IONS, $45.47, -20.97%) -  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 stock actually blew through the $40-$41 support I called and tested the $37 lows we had late in 2015.  Indicators show signs of a oversold bounce, and potentially a battle taking place for the future of this stock.  So far there is a positive trend of higher lows from September to recent lows.  However, we still have a near-term trend of lower highs and a dangerous head and shoulders pattern forming.  I think the stock needs to get up to $48 for negative trends to be broken.
 While I certainly had interest, I did not buy more shares.  In this kind of a market, speculative stocks are very difficult to buy when they're moving so violently downward.  I would rather buy shares in the lower to mid $40s with some support and lose some potential gains.  Even if the market has started to rebound, in many cases it's normal for stocks to retest lower prices before taking off (though there are situations where that doesn't happen).  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 7.8% of my portfolio.

Fours:
On Semiconductor (ON, $8.34, -1.57%) - I'm now in the red on this holding, and 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 reached within a few cents of that mark.  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 was extended again, this time to February 3.  This clearly hangs over the company, but I can't tell if it's positive or negative.  Part of me wishes they'd post a $21 offer and see what happens, but I do like the discipline and willingness to lose an acquisition rather than putting themselves at financial risk.  Outside of that, the company won't announce fourth quarter earnings until February 8, 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.  There is nothing in the charts to hang your hat on either.  Everything is bearish, we're seeing a sign of a small oversold bounce, but that's about it.  Nothing provides conviction that this is turning around.  My downside risk is about $8 while my price target is currently at $11.  ON is 7.2% 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.