Weekly Portfolio Summary

Hello again, everyone.  I apologize for the hiatus, but I had a combination of real-life activities come up which pulled me away from being able to maintain my blog.  Just before I left, Ionis Pharma reported numbers for the fourth quarter.  I haven't had a chance to report on it, but the general gist I have seen is that things are good, but the sector is bad, so the same old volatility continued.

A lot has happened since I last reported, so I think the first thing I need to do is revisit the list of items I called out that will need to happen to improve the markets (as it's fairly obvious the market has improved since last time, I want to note the factors as to why and use this to help determine how much strength might exist).  First up is oil, which was a major driver of stock direction before my break.  We saw WTI crude get down to the mid-20s and then bounce back into the 30s.  It bounced around there for a bit, but as of this week, has now risen back into the low 40s.  This provides prices where companies can survive and provide debt readjustments via share offerings.  This is a big change that has created a stronger market - not because higher oil prices are good, but more so that prices have risen enough to reduce or remove the worry of companies going under.  You've seen many similar cases in the minerals and mining companies.  The commodity bust seems to have found its bottom.  While I doubt that oil prices will stay this high for very long, it is an adequate release of pressure that can help alleviate the financial risks that existed.  

The week ahead is shortened due to the Easter Holiday.  We've exited earnings season and are preparing for the next one.  At this time, news and politics, combined with sentiment are the most likely drivers to the market.

Given the overall sentiment change I've seen towards stocks, I've made adjustments to my rankings based on longer-term conditions, now that the market does not appear to be holding as much risk as it had before.  I'll have to review later if these actions were taken correctly, but they are what they are for now.

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.


Ones:
Citigroup (C, $43.54, 4.23%) - 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.  That improvement has continued to be slower than expected, though.  The Fed just announced that inflation isn't growing and there are global growth impacts they are concerned about (rightfully so), and as such, they are trimming the number of projected rate increases to 2 for 2016 with a 1% anticipated target at the end of the year.  Citigroup also announced that the first quarter results would be much worse than expected due to a significantly reduced trading profits.  This puts a pinch on the banks for the near term.  That said, the charts and indicators are actually starting to show some positive formations, a revers head and shoulders pattern and the momentum, MACD, and RSI indicators are all on improving trends.  This would seem to indicate that while there is some potential for downside, we would be in a reasonable time to be getting in the stock on any pullbacks.  Do watch out if the stock drops back below the 50 day moving average, though.  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.

Pepsico (PEP, $101.29, +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.  All estimates have been based off of a strong US Dollar, but that strength has been waning - especially since the Fed's recent statements regarding less rate increases.  With commodity cost improvements starting to take effect and likely stronger reporting results in the second half of the year, it's very possible estimates are too low right now.  The company's committement to returning cash to the stock holders while continuing to grow the dividend is also something people will flock to while rates continue to stay low.  This is why the stock's price is strong despite what really appears to be high valuation.  The charts continue to appear bullish, with the stock wanting to break out some.  I don't think the stock has run ahead of itself at this point, and would be worth of a buy on any pull backs.  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, which may be an undershot with how things are turning.  I'll wait for first quarter results to make adjustments.  PEP is 11.7% of my portfolio.

Twos:
Cedar Fair (FUN, $59.76, 8.25%) - 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.  During their fourth quarter announcement, the management team was extremely bullish on its outlook.  They're well ahead of EBITDA targets for 2018, and are extremely excited about their growth prospects.  This is extremely encouraging and is why the stock has taken off since the announcement.  Clearly wages costs are something to watch, but management appears to have this well in hand as well.  With oil down so much, it becomes more likely they would benefit from more cash in consumers' pockets.  Technically, the stock has broken out big time.  We're actually at a point where the stock may be a little ahead of itself, so don't be surprised if we see a pull back of a few percent.  I expect the positive trend to continue under the current circumstances, thought and we'll likely see the 50 day moving average cross the 200 day average.  This should help build some new levels of support as we trend into a stronger bullish pattern.  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 missed my opportunities to fill my position, but it's mostly full and this is a pretty good problem to have.  Cedar Fair is 14.6% of my portfolio.

Honeywell (HON, $112.10, +163.41%) - 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 with the 50 day average now crossing the 200 day.  Truthfully, the stock seems a little stretched right now, but despite that, it also appears it could continue this for a little longer before it rests/pulls back some. My estimate for 2016 is $6.55 with a 17 multiple.  That puts my 2016 target at $111, which we've now passed.  There's no doubt that we're in a more favorable market and that Honeywell is starting to be more valued for its consistency and performance in recent market conditions.  As such, my target is now up to the $120 mark I've referred to in past postings.  I'll wait until I hear the first quarter call to determine if I will make any further adjustments.  Right now, the down side risk is to the 200 day moving average of $102, but it would take a rather negative overall market - like the one we had at the start of the year - to push down that far.  This stock is a buy on any pullback to the $106 region.    HON is 18.5% of my portfolio.

Home Depot (HD, $131.35, +111.43%) - 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.  Recently this is the one part of the retail sector that continues to have strength and I don't see it changing.  Consumers have become more focused on experience (see Cedar Fair as an example) than just objects.  While the house is an object, making the improvements to have the happiest experience while home is really the attitude I see forming.  I have a 2016 estimate for EPS of $6.16.  My multiple is still at 22 times earnings and that puts the price target to $135.50.  I may raise my multiple again, as the one strong spot in the retail sector, it's domestic presence, and it's overall performance is showing signs of people willing to pay higher multiples.  Ever since their earnings announcement, the stock has been on a general rise.  The technical patterns are all very strong, though some are showing signs of potentially being over bought.  The stock has made a significant move in a short period of time, so it's likely to stall or pull back some, but the feeling I get is it wants to reach and make new 52-week highs (right at my price target) before that happens.  It's very possible the stock just meanders around the $135 mark for a little while, forming the right shoulder of a reverse head and shoulders pattern - only signifying the stock it to move much higher yet.  HD is 13.8% of my portfolio.

On Semiconductor (ON, $9.48, 11.88%) - 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 factor that has made such a dramatic change to the stock over the last 3 weeks is the status of the Fairchild offer.  Towards the end of February, Fairchild announced that the bid from the Chinese company was not superior to On's bid, and as such, we've seen a dramatic shift in shares being tendered to On Semiconductor (voting in favor of the On deal).  In addition, On has received approval from Germany and Japan to clear them of any anti-trust issues.  Suddenly, this buyout looks extremely possible and what it does for the company is going to be massive as there are many synergies to take advantage of between the companies, and the merger will make On Semiconductor a major player in the analog chips space.  To say the last time I commented on this stock was the bottom, would be an understatement.  It has surged since that last time, and the charts are all extremely bullish.  I would say that they're reaching a point of stretching too far, technically, so we may see a stall (more likely than a pullback unless markets overall make a turn) around $10.  But as news continues to roll out about this merger, I think the stock is going to see a continued surge.  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.  Also, the higher promise of a deal has to expand the multiple, because the growth prospects are much larger than they were before.  I'm raising my multiple to 14, giving a new price target of $12.75 - a target I find reasonable, under current conditions, only if the deal goes through.  Should first quarter results bring more signs of strength, we may need to make more adjustments.  I have no choice but to raise the stock to a 2.  It should've been a 1 or 2 last time, as so much risk was out of the stock, I was just blind to that fact.  If you can get a decent pullback, a buy would be worthy.  ON is 6.3% of my portfolio.

Threes:
Ionis Pharmaceuticals (IONS, $38.65, -32.82%) -  The Ionis story is a difficult one.  It's been a wild ride over the last few weeks as the stock has been making dramatic (4% or more) moves - both up and down - since I last reported.  While I haven't yet reported the last quarter results, the fundamentals of the company are still in good shape, despite having 6 drugs in Phase 3 studies.  They project a Net Operating Loss (NOL) of around $60 million and cash reserves of over $600M.  I expect these numbers to be beat, as that has been the history of the company for being conservative.  This years numbers of a NOL of $16M and cash reserves of $775M help shape that picture some.  With a pipeline of almost 40 drugs and an eighth of them in phase 3, there is certainly a lot of large opportunities in front of us.  The down side is that the phase 3 results aren't likely to show up until early 2017, making it harder for this stock to see a pop over the next 4-6 months due to company information, unless we get some new and unexpected partnerships/drugs.  Any phase 2 results that pop up, could also be helpful, if positive (and crushing if negative).  The charts show a number of new patterns forming, but not a lot that's really concrete.  The 50 day moving average is still trending down and has proven a hard ceiling for the stock.  There are some positive trends, but the overall sector is weak, so it's hard to tell if we're soon about to break out, or potentially have a new break down.  How the stock performs over the next week may help shape that story.  For now, I will hold my 2016 price target at $62 and hold my rating at a conservative 3, because of the sector sentiment and strong ceiling of the 50 day.  I see some more value in the stock, but not yet enough to put on a larger position.  The fight against the sector, and the lack of catalysts this year brings me hesitation.  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.