Sunday, January 8, 2017

Weekly Portfolio Summary

Greetings and happy 2017!  May anyone who reads this find a year of health, happiness, freedom, and prosperity.  Now that I got that all out of the way, let's start digging into the real business I go through here.  Namely my portfolio.  The week has been a bit of up and down while the market tries to figure out where it's trying to go.  Many people expected a selloff at the beginning of the year due to tax loss selling, but if that has been happening, there's been plenty of buying strength to help sop it up.  The big bad event being watched is the Dow Jones Industrial Average and it's trek to a value of 20,000.  It fell thirty-seven cents short today, but I don't find it to be a huge milestone other than the fact that it's a nice big round number.  

As has been the usual, President-Elect Trump has been making news via his Twitter posts.  In all cases, related to business news, they were posts about large companies or conglomerates sending jobs off to Mexico or somewhere else and trying to promote a huge border tax for items made outside of the US and shipped to us for sale.  The auto group, in particular, was targeted.  That said, that same group came out with results much stronger than expected, while retail stores Macy's and Kohl's pre-reported poor numbers for their holiday shopping results.  I can't help that this represents underlying signs of people willing, or maybe purposefully going out to purchases big-ticket itemst that require loans before rates start climbing too much.  So they spend the big money there, and spend less on retail.  That's not to take away from the fact that Amazon still is likely a big winner as well, but if we continue to see/hear poor numbers from retail, I don't think it's all going to Amaon.  I haven't heard anyone else throw this theory out yet, so maybe I'm simply off my rocker. 

Speaking of news, Ionis Pharma is back at pumping out the news.  Friday morning, they announced a partnership with Novartis on two cardiovascular therapies.  Then after the close of trading that very same day, Ionis released a preannouncement that they expect to significantly outperform guidance provided for 2016.  With this news, they're expecting to have operating profit in the low to mid 20 million range while they maintain a cash balance around $650M.  I discuss these items further in my most recent stock analysis.

Earnings season is getting under way now though we no longer have Alcoa kicking things off.  No on on my portfolio will be reporting next week, but JP Morgan, Wells Fargo, and Bank of America all will report next week.  These reports could determine the trajectory of all bank stocks for the next few weeks.  Since November, shares of Citigroup are up around 21%.  That's a big, quick move and I've considered taking out some profits to protect for a downside fall, but I haven't decided to do so yet.  I have only a couple days to pull the trigger if I'm going to do it, but if I sell, it's only to protect profits.  I would buy shares right back when the price drops some as I see long-term trajectory is higher.  The final thing to keep an eye on will be the JP Morgan Pharmaceutical conference that will be taking place next week.  Ionis Pharma will be at the event, likely to pair up with Biogen to promote their new drug, Spinraza, which was just approved to go to market.  They will also present at the conference on Monday at noon CST.  The results from that will be something to keep an eye on, but given the announcments they just made, I don't expect any fruther new developments. 
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:
None.
Twos:
Citigroup (C, $60.55, +44.96%) - I've held this bank for a long time as a play off a turnaround which might be starting to happen.  Economic reports, which have been consistently strong enough to believe the Fed both can and will raise rates, which allows banks to make more money.  Add onto this news a Presidential election that has resulted in believe that the economy can grow and companies can do even better due to less regulation and you have a stock that has surged over 25% since October.  In the long-term, I thing the stock still has room to run, given its current price is still lower than their book value (TBV).  However, a move like we've seen usually results in a pause or pullback as people take some profits.  This isn't a bad thing, though.  It's just a stock taking a breath before it moves again.  When I look at the charts, the indicators in the daily charts show signs that the stock is starting to roll over.  While momentum has maintained its strength, the MACD has had a bearish crossover and we're starting to see declining trends in the RSI and OBV, despite a stock that has still gone up.  The weekly charts still have strength to them, but the MACD is weakening just a little, the RSI is near over bought territory, and the OBV has started to decline a little too.  Even the XLF, which tracks all financial stocks show similar patterns, so if there is a decline, it'll be an industry-wide event, not something specific to Citigroup at this time.  I'm much more fearful of a pullback right now than I typically am.  As such, I'm considering pulling out my current profits in anticipation of a pullback I can get back into later.  I still am very confident in Citi's long-term trajectory, just not the short-term reactions.  I'm targeting a 2017 TBV of $67.50 and placing my 2017 price target at just above 1 times TBV to a value around $69.  Citigroup is 16.90% of my portfolio.

Cedar Fair (FUN, $64.37, +15.93%) - To try to play the strengthening US consumer while also protecting my portfolio with yield, I chose Cedar Fair on the theory that people are looking more for fun experiences to put their money as they feel more comfortable with an improving economy and lower gas prices.  2016 resulted in record sales and there isn't anything, at this point, that has management believing the trend is changing.  They continue to expand their Christmas celebrations and also look to expand or improve on hotel experiences as much of their attendance comes from a wider radius.  This year, the company feels confident that they will continue to see growing EBITDA as they target to make $500M in EBITDA a year faster than originally targeted.  The charts are creating a little caution in me at this time as many of the daily indicators just pulled back.  It's possible they're turning back around right now, but it's also a possibility that things are just bouncing.  To help decide, I look at the longer-term weekly trends and see that momentum appears to be fizzling a little and the positive gain in the MACD appears to be pulling back some.  In all cases, the RSI and OBV are still positive, but flattening some.  Despite Fed rate hikes, the stock is still growing, so key risks seem to be OK for now, but the risk/reward is getting tough.  Right now, we're already above my 2017 price target and my downside risk is in the $57 - $60 range ($60 is the 200 DMA whereas $57 provides 6% yield).  I estimate 2017 earnings of $3.57 and with a multiple of 18, the 2017 price target is $64.25.  I'll have to wait until earnings are released before I can make any adjustment to these targets.  Just another reason why I feel the upside is limited for now.  Cedar Fair is 15.87% of my portfolio.

Home Depot (HD, $133.53, +114.94%) - I chose this stock as a play on the housing and retail industries, expecting positive results from people taking advantage of an improving economy and home prices to invest in home building and improvements.  While Home Depot's results have backed my expectations, the stock hasn't performed in suit. I had to downgrade the stock because it got to a point where I felt the price posed more risk than I cared for.  The price has surged on no news over the last couple weeks, though I have reason to believe the cause for that may actually be related to the extra $2B in buybacks that was announced for the fourth quarter.  The company is executing on its plan, taking share, and expect same store sales comps of 5%, which is pretty incredible for a company that isn't opening more stores.  I have a feeling the fourth quarter earnings call and 2017 guidance will be key, but they're quite a while away yet.  In the mean time, I'm trying to get something out of the charts and it's a combination of not easy and not good.  I see both potential head and shoulders patterns as well as inversed head and shoulders, I see short down trends I see double or triple tops and all kinds of stuff.  Everything from multi-year views to daily and weekly charts have some daunting downward trends, but also show some opportunities like an uptrend in an OBV or a positive MACD.  So they're just not a lot of help right now.  I estimate 2016 earnings of $6.34 and 2017 earnings of $7.10.  I estimate a multiple of 22, giving a 2017 price target of $156.  I think this is a great company and operator, but at this specific point in time, the stock feels to be in no man's land.  HD is 12.42% of my portfolio.

Honeywell (HON, $118.53, +180.01%) - The chosen pick to play industrial growth in a growing US economy, Honeywell's stock has not performed as well as expected they year.  The company has had a lot of growth in a number of its businesses, however, it's aerospace division has been hurting things pretty significantly.  The primary areas in that division are the private jets and helicopters, though some of the defense spending has also been a problem.  Recently there have been layoffs in the division to help account for the under performance and keep margins in check.  I feel another factor has been the announcement of CEO Dave Cote stepping down in March.  Dave has been an exceptional leader since he took the helm of the company over 10 years ago, resulting in a company with spectacular performance and consistency.  I believe he's handing the reins over to a CEO capable of continuing the vision he has set, but that is what's going to be watched closely in 2017.  The company states that promotions for their aero business are going to start descending in 2017.  This will help improve margins and reduce expenses, plus they believe it's helped grease the gears for further sales.  Taking a look at the charts, we see that the stock has taken quite the charge since the "disappointment" in October.  The stock is up over 12% since that time.  All chart indicators in the weekly trends appear to be giving very bullish at this time, whereas the daily charts are just starting to show signs of breaking out.  I anticipate 2016 earnings of $6.53 and am adjusting my 2017 target down to $7.10 - anticipating that the company is currently being particularly cautious.  I also think industrials are going to be able to fetch a stronger multiple if the economies of the world really do start firing on growth.  Thus, I've raised the multiple to 18, resulting in a 2017 price target of $128.  HON is 16.54% of my portfolio.

Ionis Pharmaceuticals (IONS, $47.83, -8.10%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  Biotechs have been heavily out of favor due to a couple high-profile pricing concerns and political banter about getting costs under control.  While the group, as a whole, still isn't out of the woods, Ionis is currently faring to be in a much better position.  The company received approval of its Spinraza drug just before Christmas and Volanasorsen phase 3 data will be released during this quarter.  In addition, they've just inked some partnership deals with Novartis and announced that their results for 2016 will significantly out perform their guidance.  Like Citigroup, the stock has moved a large amount in a short period of time.  I've been worshiping the alter of it being a time for a pullback, but whatever pullbacks we've gotten have been exceptionally brief as these aforementioned news releases have kept coming.  The latest pipeline discussion resulted in one drug getting cancelled and being re-investigated via newer technologies.  When looking to the charts for timing and direction, the daily charts are showing that the stock is a bit extended and needs to take a pause.  The MACD has turned bearish as has the RSI, while the OBV holds flat to slightly up.  The weekly and multi-year charts look a lot stronger at this point, though, indicating that as the stock pulls back some, there likely will be strength to create a floor.  At this point, it seems like the floor might be in the $45 - $47 range.  I'm estimating a 2017 earnings target of a $0.50 loss for next year, primarily due to ramp-up costs early on.  My price target for 2017 is about $58.  Ionis is 11.12% of my portfolio.

Threes:
Pepsico (PEP, $104.56, +44.62%) - The epitome of a safety stock, this consumer packaged goods (CPG) company is in my portfolio not just for the safety it can provide if the stock market takes a dive, but also because the company has been performing extremely well on its promises.  It's currently one of the best CPG companies in terms of organic growth after third quarter results.  Now that interest rates were raised a quarter point and there is documented expectations of 3 more hikes, we might see some rotational pressure on this name as people move money to cyclical growers.  That doesn't mean we have to do the same, though.  Yes, the stock may not grow as fast, but there's growth in this company and it's well led.  I think it's still a great stock for a core holding in a portfolio for the long term, despite the shorter term "risk."  Watch out for headline news regarding taxation on sugary drinks, but counter that against the fact that management is expecting mid single digit organic growth numbers. As the market sentiment has gotten more bullish, you can see how the stock, itself, has gotten more bearish.  There is a downward trend in highs that goes back to July, the daily MACD has a bearish crossover taking place, while RSI and OBV both trend negatively as well.  The weekly charts show decreasing momentum, a MACD that can do a bullish crossover and RSI and OBV are both trending negatively.  Finally, the multi-year charts show negative trends in OBV, RSI, and Money Flow, and the MACD can't make a bullish crossover happen.  Right now, I think the maximum upside is $105, according to the charts and I see the downside going to $100, though it could go lower yet.  I estimate 2017 earnings of $5.16.  I'm lowering my multiple to 19 because of multiple contraction in this space, which gives a 2017 price target of $98.  While I like the stock long-term, I'm lowering my rank of the stock given the current risk/reward.  Any selling done will be purely to lock in gains acquired.  PEP is 9.73% of my portfolio.

On Semiconductor (ON, $13.01, +53.54%) - On Semi was a stock I chose long ago as a play into the tech industry.  It's a leader in power saving for various technical devices.  It completed the acquisition of Fairchild Semiconductor during the third quarter, which is meant to help expand their reach, capabilities and market share.  With the increased synergies, they should be able to increase their value.  That said, the cyclical patterns this stock has needs to be noted and reacted on.  The stock did have a nice breakout and is sitting above its former ceiling of resistance, this gives it some room to run further.  Daily charts show OBV and RSI trending positively, but the MACD has just shown a bearish crossover.  I'm also a little concerned with decreasing momentum over the last three months and the slightly descending trend of the RSI and OBV in the daily charts.  However, the weekly charts show a slightly different story.  The OBV and RSI both are trending upwards and the MACD is still bullish, though weakly so.  Momentum here has only been trending down since a little before mid-December.  Additionally the multi-year view shows similar strength in the indicators like the weekly charts.  Currently I estimate the risk/reward as fifty cents up and a buck down.  As such, I'm looking to potentially sell some shares - particularly if I feel the market is making a correction and I want to protect my gains.  Otherwise I'd like to wait and see what the earnings release brings me in February.  My 2017 earnings estimate is $1.05.  I feel a fair multiple for the stock is a 13, putting the price target around $13.50 for 2017.  I see that consensus for 2017 it at $1.15, so there might be something about the Fairchild deal I'm missing.  If that's the case, that can move the upside target to $15.  I also want to be cautious of the cyclical patterns that typically happen in this stock as we typically see the stock drop come spring time.  ON is 9.08% 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.