Weekly Portfolio Summary

A week without earnings allows me a chance to do a full review of my entire portfolio - something that's hard to accomplish with a full time job and short Minnesotan summers that you want to take advantage of.  So far, 3 of 7 of the stocks in my portfolio have reported.  Pepsico and Citigroup both did well whereas Honeywell didn't do poorly, but there were things there that are making people take pause.  We're a little over half-way through the heart of the earnings season as well, with almost 63% of companies in the S&P 500 reporting.  Of those, over 70% have beat their marks, which is fairly impressive.  The trend of downwards earnings seems to have come to and end as it looks like the S&P is showing future earnings trends to be rising going forward.  This helps prepare for a potential new bullish leg in the markets after having trended between a range of 1900 and 2100 since October of 2014.  The fear and greed index is in the extreme fear range, meaning there is a lot of bullish sentiment, yet at the same time, there's a lot of talk about fear regarding how things will perform in August.  That much doubt and skepticism, combined with a large amount of cash that's out of the market can create an environment for continued strength in the S&P 500 - if the cash gets put to work.  Hard to say if that happens as many people just seem scared of the market.

The week ahead has an earnings announcement for Cedar Fair Amusement Parks.  After the poor numbers put out by Six Flags, combined with the gyrations of the stock on no news could create for an interesting time.  When a competitor suffers, there's some fear that there is a fundamental flaw in the segment and Cedar Fair could fall in suit.  Should they beat the expectations of $1.07 of earnings on $390.43M of revenues, I expect the stock to shoot up again.  If they miss, I expect the stock to go down, but it's also gone down a lot up to this point.  Providing the stock doesn't run between now and when they report on Wednesday, I feel down side risk will be limited.

The other thing to watch for will be the results of the July non-farm payroll reports that will be released by the government on Friday.  After a horrible result in May, June's results were blow-away.  If we get more blow away numbers, the Fed rate hike chatter will become deafening.  Anything else should leave us in a decent position to see the stock market stabilize and rise some more.  As this plays out, you have to stay aware of who will be impacted.  Blow away numbers means staples, utilities and any other bond equivalent stocks as well as international company stocks will likely get hit while banks and US focused companies will benefit.  The opposite will be true in other circumstances.  After the incredibly strong reports from major Tech companies like Microsoft, Facebook, Google, and Amazon, I don't see high growth tech stocks getting hurt no matter what happens.  I'm not sure about growth stocks in other sectors at this time. Interest rate movement and the movement of the US Dollar likely becomes the dog that wags the tail at this point.  Lately the market has been all over the place with no real correlations inside sectors or based on macro conditions.  I have a feeling that will change after Friday.  Keep an eye out for what might become the leading correlative and be prepared to figure out how the market will likely rotate based on that.  

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, $43.81, +4.88%) - 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 and I've suffered performance for being wrong in the short-term.  Global economic markets and a slow growth US economy has left us with continually low interest rates and a Fed (despite whatever you might think should happen) left deciding to keep rates low.  The most recent Fed meeting left speculation to a rate increase in September.  I'm done playing that game.  It'll happen when it happens and either you wait to get in stocks like this, or you get in now knowing you might not go anywhere for awhile.  I consider this stock to be grossly under valued and think it's worth slowly getting into.  Personally I've been in this position for a long time.  I got one good leg up and now I'm waiting for the next one.  I haven't been right short-term, but longer term I see very minimal downside risk.  I now believe it'll be hard to expect the see the stock reach even or go green for 2016.  The charts are showing the stock holding some support with the 50 day moving average at these current prices while relative strength and on balance volume also stagnate.  We are at a risk of breaking to the down side right now based on how some indicators have been dropping as of late.  While things can go down, they're not likely to go down terribly far.  If interest rate hike talks get louder again, we're more likely to see the stock push towards the $47 - $50 range.  I'd say the floor continues to sit around $37 - $40.  I have estimated TBV to grow 5% in 2016 to a price that's a little below $63.75 and maintain that value for now, despite Citi nearly hitting the mark in the last quarter of reporting.. Current conditions make me believe that the best price C can get is 0.75 times TBV, though, leaving a target price around $48 for 2016.  Sentiment would have to change for me to believe the range can be increased, but anything all the way up to book price is fair game - I just don't expect us to get into the $50s in 2016.  2017 estimates start with a TBV of $70 and the market paying 0.85 times TBV for the stock.  That leaves the price target for 2107 earnings at $60.  Citi is 14% of my portfolio.

Twos:
Cedar Fair (FUN, $59.20, +6.86%) - 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 has been talking about how they feel well positioned and have raised guidance in the past.  This was shown through a solid beat of expectations in the first quarter EPS results.  Clearly wages expenses are something to watch, as is the overall mood of the country with the given political trumpeting going on, but management appears to have this well in hand also.  Consumers seem to be OK while they still have a desire to pay for experience and the weather has been relatively favorable for theme parks.  Protected from the strength of the US dollar mostly, strong yield and growing prospects will make it a good selection for those that can pick up a MLP.  During the month of July, the stock surged into the mid-sixties while volume barely changed and then has subsequently come tumbling back down into the upper fifties, again with little volume change.  The only news to drive the stock up has been a couple of upgrades.  There's been no real news to drive the stock down either, short of the fact that competitor, Six Flags, recently posted a miss.  Technically, the stock is falling over a bit.  The price is just crossing over the 50 day moving average, the MACD has crossed over in both the daily and weekly charts, momentum and on balance volume are also going down.  The stock seems likely to pull back to around the $56.50 mark, which is held by the 200 day moving average.  The only thing providing potential to move the stock is the fact that they report second quarter earnings next week.  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.  While interest rate hikes are no longer the concern, I'm going to maintain a cautious 22 times earnings multiple (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.  I am noting that it has a lot of potential in a favorable market.  Cedar Fair is 16.1% of my portfolio.

Home Depot (HD, $138.24, +122.52%) - 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 (which isn't expected anytime soon right now), 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.  If anything, the lack of rate rise risk may slow down people's rush to buy homes right now, though it does benefit remodelers.  The home improvement store has been a rare bright spot in the retail sector.  Lowe's, admittedly had a much better quarter than Home Depot's solid first quarter.  I'm not convinced that trend continues, though.  EPS estimates have been raised due to management's raised guidance during the first quarter call and is now at $6.27.  My multiple is still at 22 times earnings and that puts the price target to $137.50.  This would mean the price is already beyond where I think it should be on 2016 earnings and when we get to the second quarter earnings releases, I'll be trying to project where I think the price goes for 2017.  The stock has pulled back rather dramatically since the last quarter announcement and has since recovered, reaching all time highs.  Technically, the stock is showing a lot of strength, potentially as it prepares for another leg higher.  MACD, momentum, on balance volume, and the RSI all show positive trends in both daily and weekly charts.  This actually concerns me a little as I don't want the stock to run too much into earnings.  All said, I have no doubt this will continue to be a great stock, just be prepared to see it run, then pull back when it gets too hot.  HD is 14.8% of my portfolio.

Honeywell (HON, $116.33, +173.35%) - 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.  The PMT division continues to suffer from the oil price collapse and this has also impacted the helicopter segment which they serve.  Add onto this a weak business jet contingent and you find that despite hitting the high end of their estimates for second quarter earnings, organic growth was a negative two percent - the low end of their estimates.  While this has created some concern in the investing community regarding recession, management stays firm that everything is within expectations and they expect a strong back half of the year and 2017.  At this time, I'm inclined to stick with them.  CEO Dave Cote is also expected to step down in March of 2017.  Dave has worked too hard for his current reputation to not see this through completely.  This is a strong management team and I expect the succession will be smooth and effective.  Unfortunately, the charts are a little shaky.  The stock has broken through its 50 day moving average, the MACD has had a negative crossover, and both momentum and on-balance volume are heading downwards while volume is high.  All indications are the stock is in the beginning stages of a roll back.  The 200 day moving average is just over $108.  Given that this will provide a roughly 10% pullback, I think this will provide a decent floor for the stock.  We're likely watching a sector rotation as many industrials fight a stronger dollar and industry related headwinds.  All things equal, I still think the stock deserves an 18 multiple when the sector is back in favor.  My 2016 earnings estimate is at $6.65 now and 2017 earnings estimates are 8% growth to $7.19.  This leaves the high end of my price target to be in the $120 to $129 range.  HON is 18.6% of my portfolio.

On Semiconductor (ON, $10.03, +18.37%) - This semiconductor company has been seen as a source of strong potential for future earnings.  As a maker of various analog chips and circuits that focus on delivering power savings to cell phones and automobiles, cameras and sensors for automobiles and industrial automation, and other similar capabilities throughout the cellular, networking, pc, heathcare, industrial, and military channels the thesis has been that On Semi should be able to capitalize as a market leader in these spaces.  Additionally, they've had a bid for Fairchild Semiconductor, which will make them one of the largest players in these spaces - giving them more global reach as well as pricing power.  The purchase has gone on much longer than I have anticipated, considering management has been speaking of the close happening in the second quarter.  That hasn't happened, so it's a bit of a wonder how long it will be before the bid is decided upon. Somehow, semiconductor stocks have been surging as of late - a bit earlier than normal as companies like AMD, NVIDIA, and other tech giants report strong numbers.  The resulting tide has lifted all boats, but we won't get to see just how well On is doing until next week.  The technical side of the stock is strong, but showing a little bit of weakness.  While indicators are strong and favorable in both daily and weekly charts, we see some breakdowns of the slow stochastics and on balance volume as of late, as it shows signs that the stock might be losing some steam - at least temporarily.  I'll need to see some more change to call for a pullback vs. just taking a breather, though.  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, my multiple is at 14, assuming there are some growth prospects that the market is under pricing today.  This leaves my price target at $12.75 - I think this is the appropriate price, but it feels like it's going to be exceptionally hard to hit in 2016. ON is 8% of my portfolio.

Pepsico (PEP, $108.92, +50.66%) - 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 as well as events overseas.  The turbulence seen in the world economics and evidence that the Fed will be hard pressed to raise rates again this year has sent Treasuries down hard.  We're at a point where the 10 year is near the lowest it's ever been as it sits near a 1.46% rate.  This causes the "safe" stocks to be flocked to because of their yields - Utilities, Telecoms, and CPG companies such as Pepsi.  I believe this is the primary reason the prices rise to these levels, despite the fact that Pepsico did have a good quarter that showed US growth - particularly from their Frito-Lay division.  The charts show a strength that has tapered off, however nothing that indicates that this is a major pullback.  More of a rest as everything is very gradual and doesn't show signs of trend reversals.  The stock is well above both the 50 and 200 day moving averages.  The latter provides a very strong floor, for now, at about $105.  My earnings estimate for Pepsi is $4.71 for 2016 with an adequate multiple of 22, putting a target price of $104 for the stock.  I also have an earnings target for 2017 of 5.18 and as long as we're willing to pay 22 times earnings for their growth, you can start seeing a price target for $114 as you pay out for future earnings.  PEP is 11.6% of my portfolio.

Threes:
Ionis Pharmaceuticals (IONS, $29.19, -43.92%) -  This has been my stock choice for speculation.  At this point, the speculation has been a giant failure, but I haven't decided to jettison it just yet.  Concerns over recent results involving low platelet counts are, indeed, worrisome to say the least.  The company has been adamant that they do not see this as a major flaw in their antisense technology, but the worry is out there - even with me.  I feel the price is too low, if the concerns are an over reaction.  As such, I have decided to continue to hold the stock while I wait for more concrete news, which I'm hoping we'll hear next week at the second quarter earnings call.  During the company's annual shareholder meeting, they have commented that the platelet issue does not appear to be related to some of the most concerning causes, however, they're still mid-investigation.  Since then, the pressure on the stock has subsided and we've seen it rise almost 30% from its lows.  While I could buy, I have the company in the penalty box and will pay up for some better confirmation before I fill my position.  Otherwise as we approach the $30, I might be looking to take my lumps.  The technicals are showing signs that I should be getting in, as we've crossed the 50 day moving average and all other indicators are showing positive trending and signs of strength.  All of that could quickly collapse with the conference call, though, so I still think waiting is best at this time.  There's no point in a price target at this point, because there are too many unknowns to have an idea what future earnings streams may really be like.  I expected the sector to suffer more from political posturing, however, now that the Democratic National Convention has completed, I find that we're not hearing much about drug prices anymore.  This could be an added positive as they're taken out of the negative limelight.  As a speculative stock should be, there is tons of risk involved here.  I think we've weathered the worst as the company continues to move forward.  As we start to look to 2017 after their second quarter earnings release, we can start pricing toward events related to some/all of their phase 3 drugs getting released for sale.  Ionis Pharmaceuticals is 7.8% 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.