Sunday, February 5, 2017

Weekly Portfolio Summary

Another week of fourth quarter earnings passes as well as the continued focus out of Washington DC and yet the markets chug along.  The S&P 500 was up a tenth of a percent while my portfolio had its first week of out performance, primarily thanks to Friday.  The course of the week started with a fair amount of caution and doubt in the markets, only to be spurned by the end of the week by a series of three events.  

First, a Seattle federal judge deemed that an executive order that prevented entry of immigrants into our country has been put on hold.  While this isn't particularly important to the stock markets, it does provide some freedom of movement and gives companies something to feel more certain about (for the time being at least), regarding diversity and growth.

Second, the US non-farm payrolls report came out on Friday with a larger than expected increase in jobs.  To go along with this job growth, there was a muted growth in wages and inflation.  This indicates that the economy isn't getting too hot, and may provide less of a reason for the Fed to raise rates in March.  The forecast is at three more hikes for the year.  Another thing to note is the increase of people looking for jobs.  I'm actually surprised to not hear more about this.  I believe that with the current election solidified, a specific group of people who were feeling targeted for job losses from the great recession started feeling like they might have a chance at things and have started looking for jobs again.  If there is more job force to look for jobs out there like this, we could see inflation abated for a bit longer and interest rates to stay lower for longer.

Finally, President Trump also signed two additional executive orders.  The first is for a concerted effort to review and redraft the Dodd/Frank bill.  The second is a freeze was put onto the fiduciary standard that was to start in April.  The latter was relatively meaningless.  It buys some financial institutions additional time to try to sell retirement plans that might not be in the best interest of the investor (particularly in the middle-class) for their own profit.  In the long run, this won't matter much.  People have become more educated about low-cost fees and management, index funds, and robo advisors.  I don't believe this trend will stop because a rule was frozen.  The former, however, does have an impact on financials, and as such they popped pretty hard on Friday, with the XLF up over 2%.  The Dodd-Frank bill was put together to prevent "Too big to fail" banking institutions - the type of institutions that had to be bailed out by the government in the Great Recession.  It included numerous rules for capital levels as well as a variety of controls and checks which required a large amount of people to help ensure an organization was in check.  This impacts institutional banks the most, as less regulation should allow them more freedom to loan to people, however, it might also open the door to banks taking on more risk, which was a root of cause to the Great Recession to begin with.  Since the markets care about a company's ability to make money, this announcement was seen as a huge positive, as banks suddenly have an ability to earn more.

For the week ahead, earnings season continues, however I don't have any stocks in my portfolio reporting again.  Get prepared for the following week, though, as 3 of the 5 remaining stocks will have reported.  That said, it would be wise to keep an eye on the fourth quarter announcement from Coca-Cola on Thursday, as their results are likely to have its impacts on Pepsico shares, despite the fact that the two companies aren't the equal comparison they once were.  Solid numbers from Coke in US soft drinks could equate to a blowout quarter for Pepsico.
  
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:
Ionis Pharmaceuticals (IONS, $46.42, -10.81%) -  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 (likely shortly before they announce fourth quarter results, as this has been a pattern recently).  In addition, they've 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 pulled back as investors both take profits and get a little more cautious.  A meeting early in the week among major pharma and bio-pharma companies with President Trump didn't yield any disastrous messages.  While they were asked to bring costs down, they were fed a promise of lower taxes to counter it, rather than calls of having to negotiate with the government.  Overall, this helped the sector lift.  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, however all indicators I see send it bouncing rather than crossing over.  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 RSI has been working towards a trend break, but isn't there yet.  The MACD is about to break through with a bullish crossover, but it's not there.  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.  As has been way to typical of me, I've been cautious in buying the stock - thinking I might get it lower, just to have some news event happen and send it higher.  I need to get more aggressive and willing to put up with a little more risk in a spec stock like this.  My ideal price is between $40 and $43, but I'm not sure I can get that any more.  I'll watch carefully and react accordingly.  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 10.84% of my portfolio.

Twos:
Citigroup (C, $57.76, +38.28%) - 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.  The recent jobs report fell in line with that with a strong increase in jobs with minimal wage or inflation gains, leaving the door open for more hikes for the year.  To provide an added shot in the arm, President Trump just issued new executive orders freezing the fiduciary standard and calling for reform of the Dodd/Frank Bill.  The former, may not mean a lot as it's becoming a demand of their customer base.  The latter has provided the likelihood for regulation costs and controls to loosen up rather dramatically.  This is one of the reasons the stocks ran since the election.  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.  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 have improved, but we're not out of the woods.  The long-term MACD is flirting with a bearish crossover and the RSI is trying to recover to a point where it is back in line with its long-term upward trend.  OBV continues to be strong, though, so this is likely a buying point for the stock (which is, sadly a little higher than I was aiming for).  The weekly and daily charts are very much in line with the long-term, with exception that in the daily charts the RSI is trying to break above its three month down trend and the OBV is trying to stop trending down as well.  The 50 DMA appears to be a level of upwards resistance, for now, but we won't test that until about $58.50.  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 16.19% of my portfolio.

Cedar Fair (FUN, $62.19, +11.43%) - 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.  The MACD is about to have a bearish crossover and it seems the RSI has gone and dipped below it's multi-year down trend.  OBV is maintaining strength, though, so I'm not expecting major shifts.  There are similar indications in the weekly charts with the MACD about to cross under while the RSI is flat and OBV is strong.  The price has dipped below the 50 DMA as well.  Finally, the MACD is ugly in the daily charts, as is the RSI.  The OBV is still flat.  I'd say that my downside risk is still in the $57 - $60 range ($60 is the 200 DMA whereas $57 provides 6% yield) and odds are you're going to want to buy in more if prices reach this range.  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 15.98% of my portfolio.

Home Depot (HD, $137.98, +122.10%) - 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 via a bullish MACD and a RSI that has changed trends for the positive.  Be careful of some indicators reaching into overbought territories already, though.  This could be an explanation to the minor pullback in price from last week.  Meanwhile, the weekly charts have a very bullish MACD, RSI, and OBV.  Things are rougher in the daily charts as the MACD is chopping back and forth over its crossover line and the RSI and OBV stay fairly flat.  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.  There still seems to be near-term risk as I'm a little concerned over the run the stock has had as we approach the next quarterly results, however, the stock is basically priced about the same as they were when they announced last quarter too.  $139 is the breakout level that it appears we need to get through for this run to have legs.  It may take the quarterly report to do that (or turn us away from it).  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 12.89% of my portfolio.

Honeywell (HON, $119.19, +181.56%) - 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..  Aerospace division continues to be an area of concern lately with private jets, helicopters, and defense spending lagging expectations.  Management expect a second half turn around in 2017, so we're not out of the woods yet.  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.  Earnings were basically in line with no earth shattering news and no adjustments from guidance provided in December.  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. The MACD in the daily chart is chopping back and forth over a downward trend line as well, which is a little concerning for a stock price that has been going up.  Additionally, the stock is now hitting 52 week highs and its ability to 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.  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 16.71% of my portfolio.

Pepsico (PEP, $105.11, +45.39%) - 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.  I had to downgrade the stock to a 2 based on the recent rise in prices we've seen.  After such a downtrend for Pepsico and CPG companies, I'm a little bit confused as to how/why it appears things are turning in favor of these companies again.  Some of it may be related to a push into volatility safety with the varying degrees of conflict arising from moves out of Washington DC, but that doesn't seem right.  After the jobs report, there seems to be more comfort around job growth with minimal wage growth as well, leading people to think the Fed may not hike again in March (I don't agree with that sentiment right now).  The only other thing is fourth quarter reporting that has come in, but that's been relatively mixed among the CPG companies.  On top of that, the stock has risen 5% in the last 3 weeks or so and given that Pepsi doesn't report until next week, it leaves me feeling a bit more cautious in the short-term.  Shifting to the charts, as I hinted, there appears to be a turn starting to take place.  The MACD has bounced and stayed bullish on the daily charts while the weekly and monthly both look about to do a bullish crossover.  The RSI has started rebounding and is about to push through longer-term down trends that it has been following.  The price has crossed the 200 DMA on the weekly charts and is just about to do it on the dailies.  If the prices and other indicators cross above all of those trends, it could be setting up a new floor for the stock.  I think that's what we'll be watching this week.  This is the point where the stock may break out and try to push towards it's 52-week high, or we'll find the resistance trend take over and start to send things back down.  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 have my multiple set to 19 because I anticipate multiple contraction in this space as rates go up, which gives a 2017 price target of $98.  Any selling done will be purely to lock in gains acquired.  PEP is 9.82% of my portfolio.

Threes:
On Semiconductor (ON, $13.94, +64.52%) - 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 last 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 its 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 well over 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, which is why I'm not rushing to sell the stock (along with what technical analysis tells me about my timing).  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 9.77% 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.