Weekly Portfolio Summary

So it's been a couple weeks since I've last written.  In that time the Fed held off on raising rates, and volatility (represented by the VIX) has gone down.  In the hours leading up to the Fed announcement and days since, the overall sentiment has been back to the same routine.  Rates on the 10-year T-note have dropped from roughly 1.8% to 1.6% and appear to be continuing that path for a little while.  It's hard to believe we'll see it get as low as it was earlier this year, though.  People are already looking towards November and December for the next rate hike from the Fed, and all commentary is already pressing towards those "thoughts of market doom," in the hopes of striking fear, it seems.  Since the Fed's stance was made public, the market has rallied, overall, while banking has pulled back on the same news as well as concerns over fraudulent practices going on within Wells Fargo. 

Earnings season is just around the corner, so for now, the market will continue to trade on rumors and whims.  Be prepared for earnings season to start to separate the wheat from the chaff, though, while many people fear sub-par results based on macro data received over the last few months.  Outside of this, there's not a lot of information that will have a dramatic impact on my portfolio.

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, $47.15, +12.88%) - With short-term rate rises off the table, this stock is likely to take a pause and potentially fall back.  That said, it remains one of the cheapest institutional banks and it's gotten more favorable with the Government, while Wells Fargo gets the outlash.  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.  I believe the low valuation provides some, though not necessarily a lot, of down side protection since rates aren't rising and the bank has held well since the announcement.  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 that 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 stable.  In the daily charts, the price is holding above the 50 day moving average, MACD looks to be strengthening again, while RSI and OBV seem to be getting a little strength again.  The weekly charts are experiencing a golden cross and all other trends seem mostly positive.  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 14.6% of my portfolio.

Ionis Pharmaceuticals (IONS, $35.12, -32.52%) -  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 length of life for a number of diseases and conditions through their RNA altering technologies.  The short-term risk that exists 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 political 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 have been improving.  The price surged above the 50 day average, though the 200 day average seems to be a strong ceiling to the stock.  Additionally, OBV, RSI, slow stochastics and Williams % numbers are turned around or surged, indicating a potential for a small cooling period.  Weekly charts are indicating similar details, providing the likelihood that we've found  a floor in the stock's price.  I would recommend looking for a small pullback and taking advantage of it.  Ionis is 9% of my portfolio.


Twos:
Cedar Fair (FUN, $60.58, +9.35%) - 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 5.45% yield.  After having pulled back quite dramatically to its current price, it has managed to recover both because of the Fed's rate hike decision and overall value.  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 15.9% of my portfolio.

Home Depot (HD, $127.79, +105.70%) - 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 aren't great, but stabilizing.  Everything about the weekly charts show that things are starting to turn around.  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.  With rates staying down, we may have seen the short-term bottom to the stock.  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.  HD is 13.1% of my portfolio.

Honeywell (HON, $115.98, +172.53%) - 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.   If rates are going up, economies are getting stronger.  That's just what companies like Honeywell have been waiting for.  The technical data shows more potential for upside.  MACD, OBV, momentum, and other indicators seem to be turning to positive trends.  The weekly chart isn't as strong, though the OBV is trending upwards despite the stock's performance.  The one thing to watch is the stock's price in relation to the 50 and 200 day moving averages.  It's barely crossed the 50 day, and if it pulls back we could find ourselves in a situation where the price is bound between the 50 and 200 day averages for awhile.  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 17.9% of my portfolio.

On Semiconductor (ON, $11.71, +38.20%) - 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.  Since the Fed said they weren't raising rates, semiconductors have been taking a bit of a hit.  It's possible that this can be related to the fact that if the economy isn't doing so well, semiconductors must not have as much growth potential.  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, and finally, supplies are tight while last reports from On and other companies were that demand was on the rise.  On top of that, the uncertainty of the Fairchild Semiconductor deal is no longer in the picture as the deal was closed earlier this week.  The closing of the deal did allow the stock to surge some.  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 rather positive and holding overall strength, if not showing accelerating strength in both the daily and weekly charts.  OBV, in particular, is surging while the MACD is also strongly positive.  The slow stochastics and Williams% is in overbought territory, meaning we might see the price pull back or stay flat for a small period of time to catch its breath.  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 and with the merger it's now more likely to be achieved.  I look forward to the next earnings call where we'll learn more about how this will impact future earnings.  ON is 9% of my portfolio.

Pepsico (PEP, $107.34, +48.47%) - This consumer packaged goods stock is the epitome of a safety stock.  Since rates aren't rising at this time, the stock's price has recovered some.  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.  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 charts, we're seeing a bit of a mixed story.  We see signs that the price is bound between the decreasing 50 day moving average and the 200 day.  In the daily charts, we see an improved MACD, momentum , and OBV seem to be getting better.  While you don't see as much strength in the weekly charts, you do see signs of things flattening and turning, with OBV still on the rise.  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 (a 20 multiple and price target still around $104 might be more reasonable).  PEP is 11.1% 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.