Weekly Portfolio Summary

The violent roller coaster ride continues as the markets whipsawed through the week, starting rather strong to the upside and ending the week strong to the down side.  The US jobs number came in at 157,000 new jobs, which while much smaller than last month, is still strong enough to provide a very solid upwards trend.  This likely had an effect on the markets with people continuing to expect the Fed still sees inflation risk and therefore will raise rates again, while the rest of the world is deflating.  All eyes will be on Janet Yellen on Wednesday and Thursday as she speaks before the Congressional Finance Committee.  If she doesn't say anything that makes people read into taking the foot off the accelerator, we'll likely see the market stay more negative.  

The upcoming week is going to get a bit more busy as my portfolio has two companies reporting their fourth quarter earnings - On Semiconductor and Pepsico.  On Monday, On Semi will announce their results after the close of the bell.  To date, we haven't heard much for good news from other semiconductors.  Will On have a different story?  I think downward pressures from China, and forward guidance are going to be the primary indicators on how the stock will perform, however, you still have to ask if the bad news is now priced in or not.  The other thing to listen for is details on the bid for Fairchild Semiconductor.  On Thursday, the same offer for $20 was now extended to February 19.  Personally, these constant extensions are getting old and it only makes it harder to determine fair price for the company.  At this point, I think the odds are that the On will lose its bid, unless they suddenly raise their price.  For the fourth quarter, analysts are expecting earnings of $0.19 on sales of $850.25M.

Pepsico is on the complete opposite spectrum, compared to On semi, as far as I'm concerned.  Both in the fact that it will report near the opposite end of the week - Thursday - as well as expectations are that we'll hear positive news, overall, and the markets will continue to favor "safety stocks" such as this one.  Analysts expect earnings of $1.06 per share and revenues of $18.51B.  I anticipate much of the focus of the call to be on two things, the strength of the dollar and its impacts - especially in places like Venezuela and Russia - and on margin increases with oil prices now so low.  I expect the management team will be touting gains in margin and other efficiencies while telling a story of upper single digit core EPS growth.


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, $39.86, -4.58%) - 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 from the collapse of oil and a world-wide recession.  While I don't agree with that sentiment, Citigroup's stock won't stabilize until we see oil prices stabilize (which might be starting to happen, though that is still at risk), some more clarity of the assets and risk they're holding in the oil patch, and China to stabilize (which is also possibly starting to happen, but through government propping).  Despite the rate hike, bonds haven't been getting stronger and there is little confidence the banks earnings power will increase at this time.  The charts show a turn off of over sold marks, but this move has turned more worrisome than positive.  This is because we are no longer over sold due to a rally, but instead due to a flattened pressure - making this a "new normal," if you will.  The $40 mark seems to be where the prices is sticking towards recently.  However, the indicators I just described make this look to be more of a breather from selling rather than a floor.  I still think there is multi-year upside for the company 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% of my portfolio.

Cedar Fair (FUN, $51.95, -5.89%) - 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.  There is some risk, though, as recent government reports came out saying that consumers are saving more lately, which means they're spending less.  The stock has started retreating with the market selloff again.  The stock looks like it's preparing to test its lows again and I see patterns of lower lows and lower highs in the chart.  What happens when the stock hits the lows will be key and I won't make a move until I know more - despite previous statements of buying at that price.  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.  Uncertainty with the Fed looms over the stock some, despite its strong yield.  The Fed's steady stance will continue to put some rate pressure on the stock.  I am looking for the company's 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, $116.43, +87.41%) - 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, which could be impacted by the rates as well as the impacts it could have on job markets.  I have a 2016 estimate for EPS of $6.16 and a price target of $148.  The stock was sold off heavily with the retail sector last week.  This has pushed the stock back through its 200 day moving average and we're now about to test the lows we had a couple weeks ago.  The stock is not shown as oversold, which is somewhat concerning.  I do believe this price action is creating some excellent buying opportunities, for those interested.  I do want to bear just a little warning, we continue to form a head and shoulders pattern and the other indicators, especially at a weekly view, are trending downward.  Pushing down to $110 isn't out of the question anymore.  As I'm way too far above my cost basis, I won't participate in more purchases.  I still believe the stock is capable of holding its lows, but I am acknowledging more technical risk than I saw before.  In the long term view, I believe there is still a lot of strength.  We just need to get through what I'm feeling will be a difficult 6-12 months.  HD is 13.7% of my portfolio.

Pepsico (PEP, $97.32, +34.61%) - 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.  PEP is 11.4% of my portfolio.

Threes:
Honeywell (HON, $102.13, +139.99%) - 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 extremely reliable in both good and bad times as it's become pretty easy to expect you'll get exactly what they say most of the time.  Fears of a deflating automotive cycle were quite premature.  While the company's Performance Materials and Technologies businesses suffer mostly from the downfall of oil prices, it's other businesses have been strong - especially the Aerospace businesses.  Orders are up for their various airplane components, defense spending is up, and their automotive business is growing faster than the industry as they continue to grow their share in both gas and diesel turbos.  While the stock has started pulling back after earnings announcements, I expect the news of reliable strength to help ward off some downward pressure (or at least make downward pressure make the stock look that much more valuable).  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.  Should things turn, I expect the $94-97 range to continue to hold based on these earnings results.  HON is 18% of my portfolio.

Fours:
Ionis Pharmaceuticals (IONS, $35.39, -38.49%) -  After a strong rebound in prices, healthcare has again taken a turn towards the unfavorable, to say the least.  The stock dropped another 9% last week.  There was no real news in direct relation to the stock, but rather this was a whole sector selloff.  I believe there are two main factors to this.  The first is the U.S. Presidential race, where pretty much every candidate is berating the costs of healthcare and talking about how they intend to fight it.  As a consumer, I don't want high healthcare prices.  As a stock holder, if those prices go down, a stock's future ability to grow suffers a strong negative impact.  The testimony of one Martin Shkreli this week at Capitol Hill sure didn't help the biotech case any, as he's the epitome of greed right now.  I think the second reason is due to the response from the Fed recently.  While showing no indication that they intend to soften their position of four rate hikes this year, they put pressure on industries such as this, because increased interest rates make the value of future earnings smaller (the concept of Present Value and Future Value).  Both of these items create an environment of instability and uncertainty - both things that stock markets hate.  I suspect it to be an ongoing theme all the way up to November this year, unless something else changes the focus of the candidates.  Since I'm not fully positioned, this can create buying opportunities.  Technically, I reached points that I was looking/hoping to buy at previously.  However, I lack any real sense of a bottom in this stock, nor am I certain there is a bottom in the market overall.  The chart for Ionis is horrendous right now.  We've now marked new 52-week lows, hitting prices we haven't seen since mid-2014.  The trend of higher lows from September has broken and we're in a trend of lower highs and lower lows.  This trend and the clear head and shoulders pattern forming with it is, quite frankly, scary as hell.  We've now hit my next down side levels and are holding there temporarily.  Odds are favorable to more down trends, next aiming at $30.  If not that, we will test the 2014 lows in the $23-$30 area (yeah, it's that bad).  I've had a $70 2016 price target for the company, however, this is based on limited ability to calculate value of a company not generating earnings in a time when they were in favor.  Given current conditions, I have to wonder if $60 is even realistic this year (though the year is very young yet).  While I have confidence in the company's long term, the short term is under fire and if I need to raise cash, being in a losing stock that has limited potential for six months and is speculative probably isn't the right place to be in this market.  I won't sell unless I really need cash, though.  The pipeline that the company has and the number of drugs that they have going through stage 3 tests right now leave me to believe there is great upside to the stock.  However, as I've said in other posts, we won't start seeing that upside until the end of this year at the earliest.  Until then, the pressure will likely continue for all biotechs.  Ionis Pharmaceuticals is 6.2% of my portfolio.

On Semiconductor (ON, $8.05, -5.00%) - All of the same risks I've been describing over the last few weeks are still in play.  That said, we should finally get some clarity Monday evening when the company reports.  The theory has been that anything tied to cell phones, an auto market that's likely peaking, stocks that have large exposure to China, numerous semiconductor earnings downfalls, including bell weather Intel - all of these represent why this stock is under such pressure.  Last week, Honeywell shed some light that the auto market - particularly the newer, higher-end components - are still doing well.  I've called that I believe the stock can go to $8 and have frequently found ourselves bouncing around this within a few cents of that point for the last couple months.  I expect earnings to make or break that line in the sand.  Should the quarter be strong, we'll likely see $8 hold.  However, if the quarter and/or guidance is bad, look out below.  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.  Should the quarter go bad, I'm more likely to be looking to cut my losses than not.  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 19.  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, of the management team, rather than putting themselves at financial risk. The positives I saw last week in the short-term technicals have become a mess of undecided jargon.  The long-term indicators are also showing mostly bearish signals or trends, although it has started reaching oversold territories on some.  We'll have to see how things play out this week, and what happens with earnings.  I maintain my downside risk at 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.