Weekly Portfolio Summary

A good week!  OMG, I had a good week!  Well, so did the market, in all honesty, and this is the first time in 2016 this really could be said.  Does this mean that we've hit a bottom?  Honestly, I'm not certain.  The overall mood of the market does feel a little better, but it also feels a little too good to be true.  Like we've had a big jump up and now it needs to come back down.  And that's what I've been feeling - we need to push towards a retest.  So far, the S&P 500 still has trends of lower highs and lower lows.  That hasn't been broken yet.  If it breaks through 1940, then I am more willing to say I'm wrong.  That said, there is still too much uncertainty about oil - do people really believe everyone in the Middle East is going to get along and cap production?  I have to say I find it hard to believe why hundreds of years of bickering will stop now.  China has also flattened out, mainly due to government intervention.  Can this continue, or do we hit a point where things falter again - another time will tell moment.  And finally, there's the Fed.  One of the reasons for the move up is because people are now more confident that the Fed isn't as likely to hike 4 times in 2016.  One of the biggest hawks, St. Louis President Bullard suddenly got more dovish in statements made this week.  However, wages keep going up, consumer pricing had its largest gain last week, and there are a number of other stats out there supporting potential for the Fed to keep its word.  So despite nothing on my list to watch for is really addressed, the overall picture isn't as bad as it once was.  It becomes more plausible that certain sectors have bottomed and can be bought on value.  It also becomes more likely that while we maybe haven't bottomed, perhaps the bottoming process has begun, meaning things holistically will be fairly flat for a little while until more is digested.  We're moving out of a period of time where you just sit back and watch things drop and into a period where you have to have price points to buy at.  They can still be lower, just don't expect the bottom to fall out much more than it has in most sectors.

Reporting this week for my portfolio, I have Home Depot on Tuesday, and Ionis Pharmaceuticals on Thursday.  And that will wrap up the fourth quarter for my portfolio.  I'm expecting strong results from the Home Depot quarter, as the US home buying/repair continues to show strength.  Analysts are expecting earnings of $1.10 on sales of $20.39B.  They are also expecting guidance for 2016 to be in the $6.16 area.  Ionis, on the other hand, is a total wild card.  I actually expect them to speak to a positive quarter and year for 2015 and about all the potential that lies in front of us towards the end of 2016 and into 2017.  That said, I expect earnings guidance to be down, and the stock/sector has been so out of favor, I'm not sure if we can get more than a couple day pop even if they do report solid results and guidance.  The stock has been beat up, though, and is still caught in political cross hairs.  Analysts expect a loss of $0.47 on revenues of $49.32M

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.

Citigroup (C, $38.99, -6.66%) - 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 have jumped to neutral levels, however, I don't see them fully sustainable.  I do expect a pullback - maybe not to lows, but back closer to them before we can even think of trekking much higher.  Right now, $40 is clearly a ceiling.  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, $56.50, 2.35%) - 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.  Currently, the capital spend is fairly heavy to achieve growth, but the results have been positive.  Additionally, wages have been a costs impact to the company.  This will need to be watched.  With oil down so much, it becomes more likely they would benefit from more cash in consumers' pockets.  I have some concerns regarding how much more growth we're going to continue to see  and whether the multiple is appropriate.  Analyst estimates our much higher than I would anticipate.  It seems the company should have no real issues hitting their adjusted EBITDA targets of $500M or more well before 2018.  I am looking for the company's earnings growth to get better again, but I see little evidence to show it will.  For now, I maintain my $2.80 estimate for 2016, which is well below analyst consensus.  I'm also maintaining my multiple of 22 times earnings, but the 5 year growth rate is now down to 14%, so I'm pushing limits.  All of this puts my price target at $62.  It's big yield will also come in handy for now.  While the stock has surged past all of its previously bearish trends and indicators, it has done so in an alarming rate - resulting in a 10% climb in price this week.  I do believe the fortune of this stock is turning, but expect a pullback coming soon.  Cedar Fair is 15.5% of my portfolio.

Home Depot (HD, $121.69, +95.88%) - 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 at 22 times earnings and that puts the price target to $135.50.  The stock has a number of positive indicators, while the price has reached the top of its recent downward channel trend.  I think the price needs to get above $122-$123 for a few days in a row and we'll then have busted through the downward trend.  With the company announcing on Tuesday, I feel this is very possible.  The stock has created a strong floor at $110, but at this point, I believe we are seeing a change in overall sentiment, as it's maybe one of very few retailers that appear capable of continuing to do well.  Given the more positive overtones, I feel it's safe to move the stock back into a 2 - especially if we see it pull back some.  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 14% of my portfolio.

Honeywell (HON, $107.27, +152.06%) - 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 strength of the stock has continued as it pushes towards new 52-week highs.  That said, it has done so at an alarming rate and is starting to make some indicators go into an overbought levels.  I believe we're looking forward to a pullback - likely down to around $103.  I do believe it'll hold its 200 day moving average, unless something really thrashes the market again.  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 18.4% of my portfolio.

Pepsico (PEP, $99.58, +37.74%) - 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.  That said, the US dollar has been weakening as of late, creating potential upside.  Unless this new trend continues (or at least stabilizes), 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.  The technicals continued their strength, reaching overbought ranges for some indicators, but also increasing it's on balance volume trends.  I expect the stock to slow its movements, maybe even pull back a little, but overall I expect this to go a bit higher yet.  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 11.4% of my portfolio.

On Semiconductor (ON, $7.68, -9.36%) - 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 are no longer over sold, but we face a ceiling of a downward trend that we seem to struggle to get past.  As such, I expect the stock to pull back some more, unless it can reach and hold the $7.75 area.  If we don't, I anticipate falling back closer to $7, where I might be willing to buy more.  I still see $6 as the ultimate floor.  If you have no faith in the stock's longer term abilities, now is the time to get out.  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 6.6% of my portfolio.

Ionis Pharmaceuticals (IONS, $37.00, -35.69%) -  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.  The technicals have gone into their bounce, as prices rose some during the week.  Prices could go a little higher yet, but still seem firmly in the grips of a downward trend.  We could still be forming the right shoulder of a dreaded head & shoulders pattern as well.  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 Thursday, 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 6.3% 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.