Weekly Portfolio Summary

Not a lot of new information to report from the portfolio and markets over the last week.  Yes, the markets and portfolio was down, but it wasn't exactly violently slow.  If anything, I'd say the thing to note is the volatility levels being so low.  People are becoming more bullish, but they're also extremely wary of another deep pull back.  I think that leaves us in a position of meandering around for a little while.  With earnings season upon us, it's possible that this will start giving the market a charge in one direction or another.  Will we see more earnings overseas due to a weaker dollar?  Will politics be a problem?  Will the Fed step in and start raising rates near the end of the month?  These are the things I think we need to be watching for.

For the week ahead, my portfolio is officially going into earnings season with the first quarter results from Citigroup, Friday morning.  A number of weeks the company warned of a bad quarter, due to bad trading results.  Add to this an interest rate margin that's still as low as can be with a reduced rate of increase seen on the horizon.  Banks in general aren't in great shape and it will be interesting to see how they respond when some of Citigroup's competitors start announcing on Thursday.  If stocks don't go down much further, odds are that we have likely seen a bottom based upon current expectations.  Analysts are expecting to see earnings of $1.07 off of revenues of $17.61B.


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, $40.47, -3.21%) - 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 increases could be right around the corner.  That said, the Fed chair has the final say, and she just provided a rather dovish statement.  Now we've entered earnings season.  Banks are expected to perform poorly, but the question is whether the poor results are priced in already or not.  How stocks react Thursday and Friday will be the key, as many major institutional banks report on those days.  In the charts, we just broke through the 50 day moving average on Friday, though it maintains support of the $40 mark of the reverse head and shoulders pattern I've spoken to.  The indicators all look bearish, though, so I'm anticipating a break down into the $30s again.  The question will be how long and how steep the move will be.  I still expect that downward pressure to be a buying opportunity, but you have to pick at it slowly, as this sector isn't going to take off under current big picture (interest rate and low trading volatility) scenarios.  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% of my portfolio.

Ionis Pharmaceuticals (IONS, $40.39, -22.40%) -  Ionis continues to ride the roller coaster as its stock price clearly showed this week.  After moving up over 10% on Wednesday, news came out about a clinical hold that yanked the stock back over 13% the following two days.  While new I've gathered leads me to believe that this pullback is more about profit taking and looking for a new buying opportunity, it's still something worth noting as a potential risk to the company's future earnings stream.  Fundamentally, the stock is well positioned.  It has plenty of cash and cash flow to continue moving forward the 5 other drugs they have in phase 3 testing this year, and current expectations are that it'll be just a few months before the sixth is allowed to proceed again.  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 note this and start buying things ahead of those news events for the biggest gain.  Despite the violent moves, the charts continue to hold some strength.  The prices of both Ionis and the IBB have managed to stay above their 50 day moving averages, despite the pullback this week.  Additionally, on balance volume, RSI, and MACD all continue to have positive trends at this point.  I panicked this week and bought some stock higher than I should have, but left powder to compensate if another opportunity arises.  As such, I'm looking for either a confirmation that the stock is done going down or for the price to dip towards $38 before I buy some more.  I will be watching that $38 mark closely, though as a break through will break the trend of higher lows we've had going since February.  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, though it's not to be said it'll happen immediately.  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 10.8% of my portfolio.

Twos:
Cedar Fair (FUN, $59.00, +6.88%) - 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 continues its breather from its last jump higher and I think this is going to have to continue for a little longer, yet.  It may stay flat until earnings, which I think are in late April or early May, and that would be OK by me.  All indicators are still favorable at this time, so I'm not worried of a break down.  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 15.8% of my portfolio.

Honeywell (HON, $112.12, +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.  From a chart perspective, the stock has been moving sideways for a few weeks now.  This isn't bad, considering the move up prior to that and the fact that earnings are coming next week.  Indicators show signs of a small pullback for this week, which also would likely be a good thing.  I see down side risk to about $105 right now.  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 18.1% of my portfolio.

Home Depot (HD, $133.62, +115.08%) - 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.  Though some may not understand this, the stock has been pulling back some as of late and I consider this to be a good thing.  Overall market indicators remain strong, however, we don't want the stock getting too far ahead of itself.  I expect it to meander for a few weeks, now while we await more housing, earnings, and employment data.  HD is 14.4% of my portfolio.

On Semiconductor (ON, $9.51, +12.23%) - 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 number of 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 become 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 couple weeks, which isn't bad for catching a small breather from it's move up from the bottom.  Earnings are also expected to be announced about 3 weeks from now - which could be a catalyst to any breakout.  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, $105.08, +45.34%) - 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.  The potential for hearing about improved earnings prospects rises again.  This should mean that ommodity costs will 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.  And with the stock past my price target, I'm getting much more nervous.  Pepsi doesn't announce first quarter results until next week, and the fact that the stock is running up into it also is a reason I'm becoming more cautious.  Right now, I think the downside risk is to around $100 - the 50 day moving average, which is starting to become a steeper fall.  Were earnings not so close at hand, I'd likely downgrade the stock.  With earnings nearby, I feel it's wiser to be cautious, but not to make rash moves without getting more data..  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 11.3% 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.