Weekly Portfolio Summary

Stocks went through yet another difficult week, as did my portfolio.  Testimony from Janet Yellen on Capitol Hill earlier in the week yielded no comments to allow people to feel like the risk of another rate hike in March was minimized.  At the same time oil hit new multi-year lows before more rumors regarding an OPEC summit to cut down supply started surfacing, pushing the price back up into the 29s from the 26s.  Add into that various government information (except jobs numbers) which indicate slowing growth, and world-wide numbers that show slow growth to recessions most other places and you get no help to keep prices held up.  So far, 62.75% of the S&P 500 has reported and of that, over 69% has beat expectations while just over 20% has missed.  So past earnings are still doing OK.  However, 2016 earnings are now down to $119.91 whereas 3 weeks ago it was at $123.  This shows that people are at the least very cautious about our current environment, but more likely things just aren't looking that good - particularly because many of these companies do business in other countries and the stronger dollar is simply hurting earnings. While the last few days ended with rising prices, this doesn't feel sustainable for very long.  It's likely another oversold rally where we will end up dropping back down some.  How much or how far we drop can help decide if we're starting to bottom, or if there's a bit more downside to go.

On Wednesday, Cedar Fair (FUN) reports its fourth quarter results.  It's the only stock in my portfolio reporting on this holiday shortened week.  Considering that this company is almost all US sales, currency shouldn't be as much a factor (keep in mind that they do have 1 park in Canada, and their currency has been hit hard).  Any forecast provided should help give some color to the strength of the US consumer, as well.  Analysts are expecting an earnings loss of 8 cents for the quarter on revenues of $162.25M.  This is typical for the business cycle as they only have some Halloween and Christmas light events in which they have parks open for an opportunity for sales.


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, $37.54, -10.13%) - 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, some more clarity of the assets and risk they're holding in the oil patch, and China to stabilize (which is possibly starting to happen, but through government propping).  Despite the rate hike, bonds have been hitting lows we haven't seen in a few years and there is little confidence the banks earnings power will increase at this time.  The charts and indicators continue to show a downward trend.  I see little good from these charts right now and that Friday's performance was little more than another bear bounce.  That said, maybe we're getting close to where a bottom can form.  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 13.4% of my portfolio.

Cedar Fair (FUN, $51.10, -7.43%) - 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.  That said, competitor Six Flags announces next Thursday, so watch for that.  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.  The stock continues to create patterns of lower lows and lower highs in the chart, though it hasn't broken new lows in the weekly charts yet.  At this point, the trend appears strong enough that I believe it's unlikely the stock can get above and hole $53 for more than a couple days.  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, waiting to see signs of stability or a turn before I do.  Cedar Fair is 14.6% of my portfolio.

Honeywell (HON, $103.48, +143.16%) - 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.  The stocks technicals have become much more bullish since their earnings statements.  The stock is now above the 200 day moving average and has tested and bounced off of that line a couple times now - typically proving we have a new floor to work off of.  This indicates to me that the stock is back to its historical trend of slow upward growth with the 200 day average being the guide.  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, our first floor is the $101 range before we look to the previous $94-97 range to continue to hold.  The combination of both technical and fundamental confirmation of some strength is reason for me to upgrade the stock to a 2.  HON is 18.5% of my portfolio.

Pepsico (PEP, $98.49, +36.23%) - 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.  Foreign exchange rates continue to be a problem for this and all CPG companies, not only in revenues, but also in commodities, which are rising on a FX basis, but not on a constant dollar basis.  These ongoing issues is making it difficult for the company to grow top and bottom lines and will continue to be a problem until we see more growth/stabilization throughout the world.  That said, the increased dividend gives a 3% yield that encourages those looking for safety and a pledge to spend about $3B in share repurchases over the year.  This is why the stock's price is strong despite what really appears to be high valuation.  Most technical charts and indicators I look at tend to have or lean towards bullish trends.  The stock is above both the 50 and 200 day moving averages and the price recently bounced off of the 200 day, proving it to be a somewhat reliable floor right now.  I believe these technical trends only support the fundamental theory that the company's slow, consistent growth and yield are attractive spots to put money in current market conditions.  While I believe there is significant downside risk, I don't anticipate it to happen for a number of months - when there is speculation/confidence that there is more strength throughout the world (not just the US).  During that same time, you'll also likely see treasury yields become more competitive.  My earnings estimate for Pepsi is $4.68 for 2016 with an adequate multiple of 22, putting a target price of $103 for the stock.  PEP is 11.7% of my portfolio.

Threes:
Home Depot (HD, $116.32, +87.24%) - 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 because its purpose is to focus on future earnings.  I have a 2016 estimate for EPS of $6.16 but am lowering my multiple and price target to insert some more conservatism into my view.  My multiple is lowering to 22 times earnings and that puts the price target to $135.50.  After spending time this week pushing the $110 price point I spoke to, the stock has come back up over $116.  While the stock has held, for now, the technicals give us reason to be cautious as we are still below the 200 day moving average and we've created a downward channel trend (lower highs & lower lows).  While I'm highly in favor of the stock and company, the charts force me to show caution for now.  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.  Enough risk that I'm lowering my rating of the stock to a 3 for the short-term.  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 13.8% of my portfolio.

On Semiconductor (ON, $7.07, -16.56%) - The softness we've seen in other semiconductor companies was also visible when On last reported.  That said, they were able to control their costs and keep earnings under control despite slightly disappointing revenues.  They reported strong order activity in the current quarter, but issue caution as we've seen false positives before.  That said, they expect to continue to outgrow others in their key industries of automotive, wireless, and industrial products.  The other piece that hangs over their head is the acquisition of Fairchild Semiconductor.  While they speak as though the merger is moving forward, the company does face a "superior" bid from a Chinese company.  I think the acquisition will be a huge win for the company, should they manage to get it for under $22, as one Wall Street analyst noted.  I suspect the uncertainty around this merger and the continued downbeat feedback from the industry put the stock under added stress, as it almost immediately dropped $1 after releasing earnings.  The charts show signs of the stock being completely oversold, but also has a strong downward trend going.  We're at a level where there's a possible floor, but if we break $7 we're likely going to $6 - lows not seen since 2012.  If the stock can get over $7.75 and hold, we would break into a more bullish pattern, but I am more expecting of staying flat for a bit while that breakthrough point slowly lowers over time.  At this point, I feel the stock is too low to sell unless you're completely strapped for cash.  I maintain an earnings estimate of $0.92 for 2016 assuming either the merger, or an increased share repurchase will help with earnings as we progress through the year.  With that earnings estimate, I provide a multiple of 10 until we get proof that growth is happening again, putting my price target at $9.20.  I am upgrading the stock to a 3 right now based on valuation off of a recently reported quarter, but it's a cautious 3, considering the downside potential that's still there.  ON is 6.3% of my portfolio.

Fours:
Ionis Pharmaceuticals (IONS, $35.74, -37.88%) -  We've recovered slightly from the previous sell off.  There has not been any 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 prices for rare drugs that extend or cure life threatening illnesses are impacted, it may reach a point where it's not beneficial for a company to pursue them.  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 this could 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.  Buying now is like trying to catch a falling knife without any news and/or technical information that can help support the stock and show future strength.  It's OK if I don't catch the exact bottom, just being close should be sufficient.  On the technical front, there are a number of indicators stating we're due (or in the middle of) a bounce.  Those include the slow stochastics and MACD which have weak bullish crossovers forming, Momentum, Williams %R and the ultimate oscillator are in over sold territory or trying to push out of that territory.  Again, nothing here guarantees a floor so much as it's showing a bounce is taking place.  Downward trends still seem to be active and the stock can go up to around $40 and still be forming the right shoulder of a dreaded head & shoulders pattern.  Longer, weekly views on the charts aren't as pleasant to look at.  Most of the same indicators are flat-out bearish.  Some are just entering over sold territory, while many others completely lack any sign of a slowing of the downward trends.  I can draw one trend line that would indicate that the stock could be fairly valued around $40, but other than that, I can't find anything that shows the sell off should be complete yet.  Earnings will be announced on February 25th and that will give us some insights to the business' progress.  It could be a catalyst to put in a bottom as well.  For now, I will hold my 2016 price target at $62 as well as my rating at a 4.  Please note, though, that the 4 is not to say I don't like the stock, but should I need to raise cash, it would be the first to go.  We just haven't reached a point yet where I think the stock is extremely valuable, given the current market conditions and lack of any business catalyst until later in the year.  Ionis Pharmaceuticals is 6.4% 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.