Weekly Portfolio Summary

So, as summer goes, so doesn't my regular updates on my portfolio.  Now that summer is essentially over, it's safe to assume that I'll slowly gain more time to keep up on this in an amount that correlates to how much colder the weather gets.  While I love summer and taking advantage of it, it's time I put the right focus on this again, and I'm none too soon - if anything, a little late back to the game.

After going through the first three days of a holiday shortened week, the S&P 500 got belted today, falling 2.45%.  In contrast, the 10-year yield rose 3.47% today and 5.69% in the course of the week and the VIX, which measures volatility jumped an astounding 39.47% to 17.51, though this is still below the key fear area of 20.  These are the key indicators I've been taking note of recently, as all the pros that were vacationing late in the summer have come back and are taking stock of what's going on in the world.  What's going on, you might ask?  Well, it's more of the same overall.  People are speculating on what the Fed is going to do.

The Fed, or US Federal Reserve as it may be known to those not aware of finance speak, is approaching another one of their decision point dates which will determine whether they raise key short-term lending rates or not.  These short-term rates are meant for the interest charged on money passed between banks overnight, but indirectly they also influence the 2, 5, and 10 year bond interest rates, the interest rate banks provide you on your deposits, and the interest rates they charge on loans.  Typically speaking, the Fed tends to raise rates when they feel the economy appears to be having or creating too much inflation, as determined by consumer and purchasing price metrics combined with wages.  If they raise rates, they're trying to slow the economy.  If they're slowing the economy, companies don't perform as well as they used to and earnings are likely to slow in the future and be worth less in the future due to inflation.  So under normal circumstances, a rate increase means the stock market has to go down.

This fact and this fear appears to be becoming rather evident as to what's driving the market's change in direction and sentiment, which has been building, but really just started taking shape today.  The Fed doesn't meet until September 21, but money managers all over have received enough feedback from various Fed presidents as well as Fed Chair Yellen over the last week.  Rightly or wrongly, people are wagering on the side of a rate hike in the face of some more challenging employment and other government metrics recently.  If the people predicting a hike are right, we could see a market drop similar to the one from the end of last December until mid-February, where we saw a near 12% drop in the overall markets while certain stocks and sectors were hit much harder - going down 20% or more.  If the Fed doesn't hike in September, I expect we see a bounce back in the coming weeks.  How much is depended on what Janet Yellen says to culminate the meeting, though I would expect to see a hike before the end of the year yet.  Some people are afraid of multiple hikes this year yet, as well, which will put even more stress on the market.  

Now, I've been talking a lot about what it seems other big money managers are thinking.  Not that I'm a person of extreme knowledge in this space, I have a perspective as an individual investor.  First of all, trying to guess what the Fed will do seems to end up more as a sucker's game than anything.  You might miss the top, you might be wrong and be late getting in for the next jump.  It just doesn't seem really worth making significant moves until you have certainty in this area.  You don't fight the Fed, but probably shouldn't predict it either.  Does that mean you do nothing?  Well, I don't mean to indicate that either.  This is really a matter of risk vs. reward vs. your time horizon.  I'm a medium to long term investor - looking out 12-18 months at the least with my holdings.  So I'm much more likely to just ride out some of these market moves without buying or selling a share if I feel there is still significant long term prospects.  That said, I'm learning that there is something to be said for making some moves so you can profit better from the market's gyrations.  This is something I haven't gotten good at, yet, in terms of execution.

So with that, I'm going to take my portfolio and do my best to assess the short term and long term factors.  Is the stock worth holding for the long term still or does pending (it's a matter of when, not if here) rate hikes change the stock's future prospects?  Additionally, seems most likely to happen in the short-term, based off of the events early this year, where the stock is now, and what the charts say.  There may be some opportunities here to cut back some holdings to reduce overall portfolio impact and provide a decent reentry option.  Raising cash for that might be a good execution strategy and now is the time to figure it out or I may be too late and just have to ride the market's gyrations out again.

Next week, some more Fed presidents will speak.  Their perspectives can put the market into wild swings in either direction.  Additionally, CPI (Consumer Price Index) and PPI (Production Price Index) numbers are released late in the week.  This will give a perspective on inflation.  These and the continued path of the 10-year are what I'll be watching, as the market seems to be reacting to the 10-year more than anything.

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, $47.17, +12.92%) - If there's any stock in my portfolio that benefits from the short-term risk of rising rates as well as the long-term inevitability of rising rates and seemingly strengthening economy, this is the one.  On the fundamental side, the balance sheet is strong, they've been putting up good numbers, and have shifted from being out of favor with the government to being much more favored in how they operate.  Despite those things, the bank is, by far, the cheapest institutional bank in the market, in part due to an oversupply of stock from when they raised cash to shore up their balance sheet.  I believe the low valuation provides some, though not necessarily a lot, of down side protection in the event that the Fed doesn't raise rates.  This is when the banks will get hit for the short term.  TBV for the stock is almost at $63.75 already, with a chance it'll hit $65 or higher this year.  I believe as rates rise, we'll see the stock prices work back to the over 1 times book value it they have typically been priced at.  This will take some time as rates normalize, though.  Regardless, the upside potential is $15 right now, much less future potential.  Downside risk I assess to be around $3-$7, depending upon how the Fed speaks if they don't raise.  From the technical perspective, the charts are looking favorable.  In the daily charts, we just witnessed a golden cross, momentum and volume are increasing, and the RSI and OBV (On Balance Volume) graphs are all trending positively - even despite the strong pullback that Friday's 1.3% price decline caused.  The weekly charts haven't caught up yet, but are following similar trends with us nearing a golden cross, a MACD that's very favorable and all other trends in sync with what I mentioned on the daily charts.  My 2016 TBV is raised to $65 based on what I've seen in quarterly reports and the overall economy.  I'm now focusing more on what I see for 2017 and my price targets.  I'm estimating 2017 TBV to be at $72, but assume we'll only get a multiple of .8 times that as a stock price, despite that still being less than what other banks are getting.  That multiple will slowly increase as rates rise and get closer to "normalization."  My 2017 price target is 57.50.  Should Citi reduce shares enough to increase demand for the stock, this multiple will rise.  I believe $50 is a possibility for the stock in 2016.  If rates rise in September, we may see prices higher than that.  If they don't, I feel $50 is about as good as it will get.  Citigroup is 15.3% of my portfolio.

Ionis Pharmaceuticals (IONS, $29.19, -43.92%) -  This biotechnology company actually has absolutely no earnings impact that comes from any potential rate hikes.  There is some risk to future earnings value if there is an inflation risk, but that's the same for all stocks.  What I like about this stock for the long term is the potential earnings and profits that are to come from the company's vast pipeline of potential therapies that can help cure or improve lenght of life for a number of diseases and conditions through their RNA altering technologies.  The short-term risk that exist revolve mostly around political banter and consumer protection.  Events like Mylan's recent EpiPen pricing issues, where the company keeps jacking up prices without real reason or justification has gotten into the policial realm - generating various feedback and statements around protecting consumers and keeping medical costs down.  Additionally, if the economy really is getting stronger, you'll see a sector like the biotech fall somewhat out of favor for stocks that have much more visible and predictable earnings growth streams like retail and industrial stocks.  While this will put a damper in how freely biotech stocks will rise long-term, it's not to say growth and stock price appreciation is impossible.  Stock in this sector need to do a couple things, first, they need to generate growth and new revenues.  This most dramatically happens via the release of new therapies.  Second, stocks that actually make a profit tend to be more sought after.  As my speculation stock, I'm actually wagering on the fact that despite the fact that Ionis is not making a profit yet, they're likely to in the near future.  The company has 3 drugs in phase 3 testing, one of which is getting an accelerated push to distribution.  If these drugs make it through the FDA in 2017, as anticipated, the company will be able to produce ongoing profits through their royalty fees that they will be collecting.  That says nothing to the other 35 drugs they have at various points in testing, which is why I see some long-term potential for the company and the stock.  Unfortunately, due to their methods and make-up, I don't see the potential for them being bought out as much of a possibility, which is a little bit of a disappointment for a small biotech stock.  When looking at the technical factors, things don't look great, but they don't look horrible either.  The price is below the 50 day average and it seems to have become the ceiling to the stock.  Additionally, OBV, RSI, slow stochastics and Williams % numbers are all down and trending down in both daily and weekly charts.  Nothing seems terribly over sold so far either.  On the weekly charts, the MACD is positive, but flattening, while the daily MACD is negative and flattening.  Not sure if we're looking for any types of reversals here or not.  At this time, the charts just aren't showing a screaming buying opportunity, so it's best to sit back and see what better prices this volatile market brings.  Ionis is 7.8% of my portfolio.

Twos:
Cedar Fair (FUN, $58.48, +5.56%) - The short and the long of this is that this stock is meant to be a solid holding both for protection and for growth.  On the protection side, the stock is sporting a 5.6% yield.  After having pulled back quite dramatically to its current price, it's likely reaching a point where it won't go down a lot more, given the yield strength being so high.  Not to say it can't pull back a few more dollars, but it certainly becomes a screaming buy at those levels when the company is reporting that their customer and revenue numbers are at record highs.  This takes me to the longer term view, as the economy is getting stronger, people become even more willing to spend their hard-earned money and spending on experience continues to be a main theme in the markets.  This will give Cedar Fair some pricing power in addition to the strategies they have in place to continue to draw revenues more evenly throughout the year as well as increase visitation of their parks and resorts.  In short, the interest rate situation is well contained at the stock's current prices, but we can see some downside.  The long-term prospects are strong given current economic themes and conditions.  The charts tell us a similar story.  There is some protection with a 200 day at about $57 while there's a ceiling with the 50 day moving average at about $59.  This leaves the stock kind of range bound, which isn't surprising in this environment.  MACD, Slow stochastics, and Williams are trending positively in the daily, while OBV and momentum are rather flat.  In the weekly charts, MACD and Slow stochastics are trending down, but flattening, OBV and momentum is starting to trend up, helping show some longer term support.   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.  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, $127.74, +105.62%) - My play on the housing markets has been through this retailer and it has treated me well.  That said, it's time to figure out what it's doing for me lately.  The stock has been pulling back hard recently.  Most of this is on feedback from the earnings call of Home Depot Supply, a company that used to be part of Home Depot, and Tractor Supply Company (TSC) who had rough quarters.  People are projecting these results to mean that Home Depot is likely to disappoint in the third quarter themselves, which I feel might be stretching things a bit.  In addition, there likely are people that are running from a home retailer with interest rates potentially on the rise.  People are assuming home values will drop immediately with interest rate hikes, and I frankly believe this is an incorrect view on things.  That said, valuation is a little on the rich side right now.  I believe there is a number of hikes from these record lows that we can see - if administered slowly - without seeing much impact on same store sales with the company.  In the longer term, there does become more risk from those rate hikes and home values, but I see that being over 12 months away at this point.  That said, the last time rate hikes were on the table, the stock pulled back over 17%.  The technicals to the stock are rather frightening.  Everything about the weekly charts show that things are going down and it's just starting.  The price has also broken through the 200 day moving average, which has been a solid floor for some time.  The "saving graces" which might exist live in the daily charts.  Most of the indicators in this chart are at or near oversold areas, which just means we could see a bounce before it goes lower.  The volume on Friday might have some potential to show selling exhaustion, thought I'm not confident in that either - bottoms are rarely put in on Fridays.  I feel there is at least $7 - 10 of down side right now.  I don't think we go below February lows at this point.  I still believe this stock has a longer positive run in its future, but it's going to have to make it through the current beating first.  My 2016 EPS target is $6.27, current valuation is a 22 multiple providing a $137.50 price target.  I'm estimating EPS at $7.02 for 2017 and lowering the multiple to 20, providing a $140 2017 price target.  We're down just over 8% from the highs in mid-August right now.  Considering the gains I have, it might be best to take my cash invested out for now, and wait for a better entry point to get back in.  Worst that happens is I miss my opportunity  and I'm winning with only the house's money.  HD is 13.8% of my portfolio.

Honeywell (HON, $112.01, +163.20%) - Honeywell has been my stock of choice to play the rebound (albeit slow) of the US economy through great leadership in difficult times.  A small problem here is that the captain is retiring in the coming months and while I believe CEO Dave Cote won't leave without complete confidence that the next is line is capable and ready to keep things humming, there is a little more uncertainty about what's going on - especially when last quarter's results weren't terribly impressive in terms of organic growth.  That said, I believe this is all an over reaction as results were exactly in line with company expectations.  Interest rates may have an impact as interest rate hikes usually means the dollar gets stronger, but that also depends on how other monetary policies react.  The stock is over 6% off of its highs right now and is likely to go down some more.  However, based upon how things reacted back in the beginning of the year, it's possible that this stock bounces quickly and before most others.  I feel it's sold off too much at this point to consider trimming now for a stock whose long-term prospects are still well intact.  If rates are going up, economies are getting stronger.  That's just what companies like Honeywell have been waiting for.  The technical data tells a more lively story.  We're still above the 200 day moving average and it could provide a good floor for the stock around $110.  All other indicators are going down and are only getting worse after Friday.  The weekly chart isn't really looking much better, though the OBV is trending upwards despite the stock's performance.  Additionally, much of the downward pressure in the daily charts is reaching over sold marks, providing additional support that we may see a bottom around $110.  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 18.2% of my portfolio.

On Semiconductor (ON, $10.26, +21.09%) - This semiconductor is not directly subject to the throes of interest rates, but just like other to international companies, it can be impacted by the strength of the US Dollar.  Outside of that, it is subject to its own cyclicality.  Fot the last number of weeks, semiconductors have been surging due to lower supplies and consolidation in the space.  With the recent surge, the change in overall market sentiment has hit this stock hard on Friday and will likely pull back a little further.  I find it hard to believe, at this point, that we'll see the 37% pull back like we did from December to January simply because the timing.  We're now entering the best time of the year for semiconductors, which will typically last to anywhere between December and March, On Semi is about to close its deal with Fairchild, which was very uncertain last time, and finally, supplies are tight while last reports from On and other companies were that demand was on the rise.  There is risk that a rise in rates will halt that demand in its tracks, but I think it would be premature to assume that at these low levels.  Despite the fact that I've held the stock for a number of years now, it's not really a long-term stock.  I would have done so much better buying and selling the stock through annual cycles than holding it over the years, where I'm about the same spot now that I was a number of years ago.  The acquisition might make things a little different this time around, as the stock could benefit from realized synergies - even during typical down-cycle times, so I want to keep an eye on that.  The charts are where things get difficult to read.  The price is still above both the 50 and 200 day averages, which is the reverse of what we saw at the beginning of the year.  Most of the indicators in the daily charts are going down, though, with an exception to the OBV.  The weekly charts show some more strength, particularly with the MACD still very bullish, but there's some weakness here.  It's something to watch out for as the charts might help indicate something worse that's happening that we're not aware of.  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 8.3% of my portfolio.

Pepsico (PEP, $104.05, +43.92%) - This consumer packaged goods stock is the epitome of a safety stock.  Rising interest rates provide risk to this stock on two ends.  First, the stock has a very high value right now at 22 times next year's earnings estimates (29 on a trailing twelve months), second, the stock is only yielding 2.89%, which isn't enough in a rising rates environment.  The stock pulled back pretty hard on Friday, but I believe it can easily go down another $4 before it starts seeing some support as it reaches a 3% yield point.  But if rates do start raising, the stock may suffer some as people move away from the stock for easier growth opportunities.  That speaks nothing of the company itself, though.  This company is under spectacular leadership and is likely to do well over many years.  It may not beat the S&P 500, but it is a stock that you can hold in case things go bad too.  I have been worried about short term price impacts, and as such, continue to consider trimming shares to repurchase at lower prices, but I can't say I'm certain that now is the time - especially if I think the right price to get back in is only a few dollars away.  Looking at the technicals, they're really telling a story here.  In the daily charts pretty much everything is negative.  OBV is flat, but starting to go down.  That said, the stock is still above it's 200 day moving average of 102.63, which might provide a decent floor, thought the stock could fall as low as the mid-90s, I think.  There was a large spike in selling volume for Friday, which could be an indication of selling exhaustion, but we won't know that until trading resumes.  In the weekly charts, even the OBV is trending down, though again, we're working towards pushing near oversold marks on some indicators.  This looks like it's a tough stock to hold right now.  The choice will be to let go now and try to get back in a little while later, or just ride this out.  For this stock, I'm more on the side of riding it out for now.  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 11.2% 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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