Weekly Portfolio Summary

Another week has completed and I have to say the market performed much better than I anticipated.  What I was clearly unaware of when I wrote last week's summary was that Fed chair Janet Yelled was set to speak in front of the New York Economic Club and that her speech would hold significance to the market and the events that have been transpiring up to that point.  When she spoke, Chairwoman Yellen clearly stated that the jobs report would not be the only thing that needs to be noted in a decision regarding the next rate hike.  The Fed would continue to be cautious, and also pay attention to the varying domestic and global data to key on proper signals to move.  The key word we haven't really heard before was the word 'global.'  It's now recognized the impact we have on the rest of the world, how rate increases impact the exchange rates to the US Dollar, and how it can ripple through the global economy in a powerful fashion.  I'm not here to say whether I agree or disagree with Madam Chairwoman, however, the impact her words had to our stock markets couldn't be missed.  The Dollar continued to lose strength to the Euro and other currencies, and you saw more favor to the stocks of international companies.  Personally, I saw improved performance out of Pepsico and Honeywell.  While financials certainly took on a little bit of a hit, I can't say I've seen them take a big hit for the news, and seem to be recovering despite it.  

The event I did key on as a part of my prep for this week was the results of the non-farm payroll stats which were released this morning.  We saw an increase of 215,000 jobs, which was better than expected.  The unemployment rate was down to 5%, and we saw a 0.3% increase in hourly wages.  Overall, this was a solid report from every financial and economic expert I pay credence to.  Despite the strong report, we saw stocks continue to rise because we just received word from Fed Chair Yellen that rates aren't going up in a hurry as some of the Fed presidents wanted to indicate.  It is a little concerning that the move up was led by the healthcare and staples sectors.  Tech and financials weren't too far behind, though, and if they can become the generals, we will be full forward in a more convincingly upward trend.

In the week ahead, there isn't much going on specific to my portfolio.  I did see that the Fed Chairwoman is set to do another speech on April 7, though I can't say it'll be the same kind of speech as she just put out.  Either way, it's something to keep an eye on.  It's also time to start getting ready for earning.  Though nothing starts this next week, earnings are just around the corner and we will have another chance to pay attention to stocks for what they're actually doing, as opposed to all the macro events.  I expect to hear some positive words from international companies due to the weakening strength of the dollar, though I do expect financials will be in a world of pain.  If they don't go down on bad reports, we'll know we're at a bottom.

Preparing for those earnings, I think it's wise to look at what's happened over the last quarter - particularly the last half of it.  The first half of the quarter, the markets were crushed.  However, a turn of events came around February 11.  Since then, the markets overall have recovered all of their losses from the start of the year.  We've had 6 weeks of positive trends yet most people still won't believe we've shifted to a bull market (and I think it would be wrong to say I'm all too much different).  A bull market typically has strong leadership from retail, technology, and/or financials.  Not all have to participate, but the more they lead the better.  I just did a bit of research and learned that the market has been moving higher, from a sector basis, by consumer discretionary, technology, and materials.  To me, this was eye-opening.  On top of that, the retail index (XRT) and semiconductor index (SOX) performed even better than those top two sectors.  This leads me to believe that there's a strong bullish undercurrent to this trend, despite the fact that it seems that the market is struggling to move higher.  The third place sector since February 11 was materials.  I believe this is in relation to the correction of the correction - meaning prices likely got too low to be sustainable, and now they're completing a move back to equilibrium.  I can't say I think this trend has a lot more power behind it, but I'm not a commodities pro.  This all says the move up has had some good leadership.  It doesn't say this will continue for a long time.  Quarterly look at the trends show signs of the move flattening out some, and while this doesn't guarantee anything, volume has been steadily decreasing throughout the rise.  That usually is an indicator that there is less and less faith behind the move and could indicate a change in direction - even if only for a little while.  As we go into earnings season, I believe the message delivered by the companies will be the factor that determines what direction and how strong the market moves.  If they don't talk about potential for increased earnings, we're most likely to pull back.  If they do speak about increased earnings due to the dollar or increased business, the market is more likely to see an increase, and if the major theme is solid results, but cautious/unsure forecast, we may see a stall out.  I think this overall picture is something to keep in the back of your mind during these next few weeks. 


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, $42.47, 1.67%) - 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.  Fed discourse keeps this stock volatile as one moment rates aren't going up, next moment someone is saying they could be right around the corner.  That said, the Fed chair has the final say, and she just provided a rather dovish statement.  Despite that, the stock was up slightly over the week.  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.  The chart patterns and indicators are still at odds with each other, with the price still being held by a 50 day moving average that has stopped its decent and may be starting to go higher.  The fact that the stock didn't go down on a statement saying rates weren't raising for a little while gives some hope that we have a bottom.  The way the stock acts next week to the earnings report will help solidify things, though I'm not convinced we can afford to wait to hear those results yet, either.  I'm trying to leverage the charts to find a good buying point and might be trying to get too fine.  We very well might be at it right now.  I still expect that downward pressure to be a buying opportunity, but you have to pick at it slowly.  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 13.5% of my portfolio.

Ionis Pharmaceuticals (IONS, $41.62, -27.66%) -  In what is likely a surprising move, I have made a significant upgrade with Ionis, moving it from a 3 to a 1.  Fundamentally, the stock is well positioned.  It has plenty of cash and cash flow to continue moving forward the 6 drugs they have in phase 3 testing this year.  While it's true that there aren't many catalysts to make the stock explode right now, there is high potential for events in 18 months.  Growth seekers will not this and start buying things ahead of those news events for the biggest gain.  In fact, the charts show that has already been happening and it is the charts that I credit for my change in position, albeit it a bit later than I wanted.  First, we seem to be seeing a rotation into the sector, as shown by the IBB.  The price has broken through the 50 day moving average, volume is up, and all major indicators I watch show positive trends.  It is similar for Ionis' charts - except that it's maintained support of the 20 day moving average for a few weeks, broken past the 50 day, and has already tested it successfully.  Everything I see says buy the stock up if you can get it down to $40 or lower.  For now, I will hold my 2016 price target at $62.  I see some more value in the stock, and find myself wishing I had more conviction earlier, but that's like expecting to catch the very bottom.  Truth is, this isn't a bad spot to gain strong conviction as the stock likely has a very strong move in front of it.  The fight against the sector is shifting, and the view of the catalysts are that they're coming into the picture of the "out years."  If growth investors are starting to be willing to take on some risk, the stock will start to take off, though political rhetoric can put a stall in at any time.  Ionis Pharmaceuticals is 6.5% of my portfolio.

Twos:
Cedar Fair (FUN, $59.24, 7.31%) - 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 expenses 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.  The stock has taken a breather from its last jump higher and I think this is going to have to continue for a little bit more  yet.  It may stay flat until earnings, which I think are in late April or early May, and that would be OK by me.  I expect the positive trend to continue under the current circumstances, though, and then it will take its next step higher, unless market progress takes a significant turn.  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 15% of my portfolio.

Honeywell (HON, $113.23, +166.07%) - 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.  Fed news plays with the stock, but with outlooks now leaning to a lower dollar, there is more earnings potential in the stock.  I see down side risk to about $105 right now, but the stock has run hard, potentially over extending itself some.  Volume is down on the latest leg up and is something to watch for.  My estimate for 2016 is $6.55 with a 17 multiple.  That puts my 2016 target at $111, but I think the stock deserves more than that - especially if $6.55 is a low estimate.  I'll maintain my price target of $120, however, I don't expect to see that price any time soon.  I'll wait until I hear the first quarter call to determine if I will make any further adjustments.  HON is 18% of my portfolio.

Home Depot (HD, $134.85, +117.06%) - 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, its domestic presence, and its 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.  Looking at Home Depot's chart leaves me with mixed emotions.  We appear on the verge of a breakout, with a reverse head and shoulders, and the MACD completing a bullish crossover (long term).6..  That said, the stock also feels like it's starting to get hot (it's gone up around 30% from its lows in February).  It's not too hot yet, but I would really like to see it stall from now until the quarterly report - let things catch their breath for a bit.  HD is 14.3% of my portfolio.

On Semiconductor (ON, $9.70, 14.48%) - 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 entities, and the merger will make On Semiconductor a major player in the analog chips space.  At this point, On's chart shows the completion of the right shoulder of a reverse head and shoulders pattern.  We are hitting resistance of the 200 day moving average, but it also has the support of the 20 day moving average.  All of the major technical indicators I'm watching appear as though the stock has the strength to break through, and when it does, it's likely to push up near $11.  It does appear as though we may have a small amount of time for the two moving averages to converge even tighter, so I'm anticipating the breakout to happen in the next one to three weeks, which isn't bad for catching a small breather from it's move up from the bottom.  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.  If you can get a decent pullback, a buy would be worthy.  ON is 7.7% of my portfolio.

Pepsico (PEP, $103.78, +43.55%) - 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 environment.  All estimates have been based off of a strong US Dollar, but that strength started to wane - especially since the Fed's  statements regarding less rate increases.  Then came along Fed Chief Yellen and squashed all those concerns, allowing the Euro to run free, and Pepsi's stock to rise over $3 this week.  The potential for hearing about improved earnings prospects rises again.  Commodity costs do improve, but the quality of improvement also hinges on the strength of the dollar.  The company's commitment 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.  Charts have regained strength to the point that I do feel things are starting to stretch.  Pepsi doesn't announce first quarter results for a couple weeks, so I would be careful of a stock running hot into that quarter.  Right now, I think the downside risk is to around $98.50 - the 50 day moving average, which is starting to become a steeper fall.  With the stock at my price point, I'm going to downgrade to a 2.  There's still strength here, but it's going to have to pull back a bit to warrant any purchasing.  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.  I'll wait for first quarter results to make adjustments.  PEP is 11% 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.

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