Sunday, January 29, 2017

Weekly Portfolio Summary

The first week into the new administration and it hasn't been short on activity overall.  As was always pandered, various measures have been pursued, such as calling for a 20% border tax, trying to erect a wall along Mexico, and putting a freeze on immigration for people from "certain regions."  The protectionist position has started to create a little alarm in the business world because that can impact a company's ability to make money and that's all that matters in the world of stocks.  Outside of that, not much has been impactful, though it it worthy to note that the President has been showing a penchant to stick to his campaign promises.  This should indicate even more work to come around deregulation, lower taxes, and an opportunity to repatriate money at a significant tax reduction.  If these moves do take shape, they could be positive for stocks.  That said, you also have to painfully keep an eye on every move that's made because you never know quite how this one man can impact stocks.

No companies from my portfolio report this next week, but there will be a jobs number to keep track of.  I'm anticipating a relatively decent number, but not something earth shattering.  
  
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:
Pepsico (PEP, $103.48, +43.13%) - The epitome of a safety stock, this consumer packaged goods (CPG) company is in my portfolio not just for the safety it can provide when 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.  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. The bearish tilt towards the stock seems to have subsided for now, as more uncertainty has seeped in and interest rates have at least paused the ascent they were on.  Let's face it, though, the technicals aren't pretty - even if the price has recovered a little.  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't 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.  The stock price has surpassed the 50 DMA, however, it's heading back down and now we'll be testing its strength as a floor.  I don't expect it'll hold.  Despite all of these horrible technical trends, I have the stock ranked a 1, but I think this is the wrong time to buy.  I would suggest starting to buy (below $100).  Don't be in a rush to pick up more of this stock.  Take your time as it is likely to be down and/or stagnant for a pretty significant period of time - maybe a year.  That said, this is a great stock to help diversify your portfolio and build over time into the weakness.  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.  Any selling done will be purely to lock in gains acquired.  PEP is 9.78% of my portfolio.


Ionis Pharmaceuticals (IONS, $42.41, -18.52%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  Unfortunately, the biotechs have fallen 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 and has since pulling back as investors both take profits and get a little more cautious, given the occasional banter we hear from the new administration.  Technical analysis shows relative strength for the stock in the multi-year and weekly charts, but the MACD for both needs to be watched as it's about to have a bearish crossover.  The daily chart is a bit more negative.  RSI has been on a downward trend since mid-November, and the MACD has been bearish since about Christmas time with no signs of improvement yet.  The most interesting piece is despite the short-term down trends, the OBV stays stubbornly flat/strong.  This is usually a contrarian indicator that I believe is beginning to show reason to get into the stock.  We're now below where I thought the floor was, so while I'm getting much more interested in buying, I'm also looking for something to give me enough conviction that the timing is right.  Regardless, I'm upgrading this stock to a 1, with anticipation that I'll be buying somewhere between here and $40.  If I can get it below that, I'm all for it and I believe the charts will help me find timing I'm comfortable with.  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 10.02% of my portfolio.

Twos:
Citigroup (C, $57.11, +36.72%) - 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.  We now wait to see just how friendly the new administration will be towards banks.  The stock remains a value, given its price is below the TBV, but that won't stop it from having pullbacks as it has been having over the last couple weeks.  The descent has subsided for now, but I'm not convinced it's done yet..  At this time we need to see regulations start to disappear and continue to see rate hikes for the banks to benefit.  And after their last report, there is some concern around their NIM estimates, though they appear exceptionally conservative - predicting no more rate hikes this year.  I'm also a little concerned in an oversupply of stock, which hopefully can be remedied by a combination of permission to buy back more stock and larger dividend payments.  Citi's charts continue to look mostly bearish.  Long-term charts have many down trends in the usual indicators I call out, with exception to the OBV, that still has an upwards trend and could be building for a pop.  The MACD appears to be about to have a bearish crossover in both the long and mid-term charts.  RSI and OBV still have positive trends in the weekly charts and everything is bearish in the daily charts.  I see the stock worthy of buying more shares in the lower-to-mid-50s (I've been targeting $54).  I still am very confident in Citi's long-term upward trajectory despite the bearish pattern we see right now.  I'm targeting a 2017 TBV of $68 and am keeping my multiple at 1x TBV due to their latest report and overall market sentiment.  Citigroup is 16.20% of my portfolio.

Cedar Fair (FUN, $63.09, +13.04%) - 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.  When looking into the technicals, I see signs of a pullback coming in the multi-year view.  A number of indicators are overbought, the MACD appears to be rolling over some, as is the RSI.  OBV is maintaining strength, though, so I'm not expecting major shifts.  There are similar indications in the weekly and daily charts.  I'd say that my downside risk is still 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 16.40% of my portfolio.

Home Depot (HD, $138.33, +122.66%) - 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.  Since then, we've been in more of a chop with the price oscillating in the $131 - $137 range, but now appear to be starting to break out on some positive news from home builders and the fact that a mostly local company, like Home Depot, is virtually safe from the protectionist and anti-trade commentary we've been hearing from the new President.  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, the charts are showing a change in sentiment.  We see some supporting strength in the multi-year charts while in the weekly charts the MACD is very bullish and RSI and OBV appear positive since the start of the month.  Overall, trends are starting to look more positive as we see price patterns now filling out an inverse head and shoulders, the 50 DMA crossed above the 200 DMA, and the MACD has become increasingly bullish in longer term views, while the daily view just had a bullish crossover.  The OBV is showing a shallow, but bullish trend extending a number of months back.  $139 is the breakout level that it appears we're about to go through.  Just so long as the stock doesn't run too hard into the quarterly announcment.  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, and you may want to consider picking up stock now or on any pull backs.  HD is 13.08% of my portfolio.

Honeywell (HON, $118.42, +179.75%) - I continue to believe that this company is best of breed in the industrial conglomerate sector.  It does a great job of spreading itself across short, medium, and long-term cycles, has a significant play into the aerospace cycle (commercial airplanes being a primary focus), and they have a management team with a track record of excellent execution..  Oddly enough, the aerospace division has been an area of concern lately with private jets, helicopters, and defense spending lagging expectations.  Recently there have been layoffs in the division to help account for the under performance and keep margins in check and the promotional costs are now on a down trend in 2017.  Previous spend was anticipated to help build a customer and repair base that will result in better earnings down the line.  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.  Fourth quarter earnings were announced on Friday, but I haven't had a chance to review the call yet.  My thoughts will be out soon.  Taking a look at the charts, we see that the stock has taken quite the charge since the "disappointment" in October.  The stock continues to move up gently and pretty much all indicators from multi-year to daily support this move.  I have noted in all of these charts that some of the indicators are starting to stretch into overbought territory, so we are reaching a point where we may start seeing some chop or a pullback.  Additionally, the stock is now testing its 52 week highs and its ability to break it and maintain it might be a major event for the stock.  Oddly enough, the long-term charts look a little more like the stock is ready to break out while the daily charts are indicating a small pullback may be eminent.  Maybe the stock pulls back to $115 before charging to $120?  Pure speculation on my part, though.  I anticipate 2017 earnings of $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 have set the multiple to 18, resulting in a 2017 price target of $128.  HON is 16.79% of my portfolio.

Threes:
On Semiconductor (ON, $13.88, +63.81%) - 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.  The tech sector - semiconductors in particular - have been exploding with results from consolidation in the industry as well as some great reports from early reporting companies.  The high amount of debt the company has puts their balance sheet in some jeopardy, so this isn't exactly a best in breed stock, though.  This hasn't been an impact on the stock surging higher as we hit $14 earlier in the week which are all time new highs.  In full disclosure, my downgrade of the stock has been premature.  I am not in a camp that this price surge will continue yet, though, so I can't upgrade it again.  Instead, I'm riding this rush looking for the right time to sell.  That time may not be until after their mid-February earnings report, as the charts are extremely bullish.  Daily charts show OBV and RSI trending positively, but the MACD is a bit choppy on a bullish trend line.  Momentum, turned their trends around, which just adds fuel to the fire.  The weekly charts are just as positive.  The OBV and RSI both are trending upwards and the MACD is still bullish, though weakly so.  Momentum here has regained strength from its lower levels as it appears the breather has created more strength.  Additionally the multi-year view shows similar strength in the indicators like the weekly charts.  There are a few indicators in overbought territory, so we may see the stock start to pause from its ascent, but these indicators can stay overbought for awhile too.  At this time, the stock is at my 2017 price estimate, though my estimate may actually be too cautious, given the overall environment.  I will maintain my ranking of a 3 for now because I don't have enough information to adjust my price targets except for what the analysts think.  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 9.84% 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.