Weekly Portfolio Summary

Major indices took a breather this week as the S&P 500 pulled back 1.4% while all eyes were fixated on Washington DC.  The focus here was on the House's attempt to pass their AHCA bill, which had very weak support nationally speaking.  Getting the Republican votes necessary to pass the bill and send it to the Senate for battle proved impossible and no push or negotiation from the President seemed to conjure any extra buy-in.  The markets appear to be trying to digest all of this news and extrapolate it into what they really care about - tax reform.  Worries that the AHCA battles would drag on certainly brought more caution in, however much of the speak is that with this current failure, the house will likely put this aside and move on to tax reform.  I believe there's a worry that if the President couldn't get the repeal and replace through successfully, what are the chances he'll have success on other endeavors.  Tax cuts are typically easier to pass, however it often takes cuts from things like social security, which could also cause upheaval.  As such, animal spirits we saw in the market are calming.  It's important to note that reporting results this last quarter have been very strong.  Companies are seeing opportunities in front of themselves and getting more positive, so things could improve without tax reform, but that same reform can be like a steroid injection.  

My portfolio was similarly down 1.5%, driven mostly by the drop in Ionis Pharmaceuticals being impacted by the impact the healthcare bill could have on it as well as the ongoing bruises it received from the Goldman downgrade.  All other stocks, besides my safer stocks of Cedar Fair and Pepsico were down slightly.  Cedar Fair was barely up and Pepsico continued its ascent tied to rumors going around in the CPG industry of potential buyouts.  This upside has its limits, though, and I feel they're being approached.

We're currently in a relatively quiet period of time right now as the next earnings season doesn't kick off until Mid-April.  Between now and then, I'm fairly confident that the market's trajectory will be driven mostly by what comes out of DC.  That usually causes some stress and pressure on the major indices, so don't be surprised if we see more down side.  If you have big winners, taking some off the table may not be a bad idea and if great stocks pull back 5% - 10% for no real reason it will be an even better time to buy.  
  
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, $38.98, -22.91%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  After the impacts of the Goldman downgrade, the stock has mostly been driven by what's taking place with the AHCA.  CEO Stanley Crooke was also on Mad Money on Thursday, challenged by the show's host about the claims that Goldman made.  I had mixed results from that interview.  I didn't like the political dancing Dr Crooke was doing around some questions, however, his closing remarks regarding why so many companies would be partnering with & paying them if the pipeline was such a risk.  I believe this interview might be enough to help put a bottom into the stock, but that doesn't mean it's going to surge in price either.  Additionally, the rising interest rate environment still has an impact on future earnings meaning we need to watch for a point where future earnings aren't as valuable as they are today.  The company has a lot of opportunities in front of it with their pipeline, but the overall market won't be terribly helpful.  Despite the rather harsh hits the stock has taken over the last couple weeks, I was surprised to note that both the OBV and RSI were still in up trends on a longer term trend line.  Sure they're retreating and this could be a roll over point, but I was expecting this kind of move would have something more dramatic.  That said, the MACD is negative on all time lines.  There are some indicators showing an over sold reading now, though, and the MACD on the daily charts appears to be starting to turn while we also start seeing a positive turn in momentum.  The 200 DMA has done well as holding as a floor, for the time being.  While I know that it's possible that the floor may not hold, I'm feeling comfortable stating that this is a point that you can at least start buying more stock if needed.  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 $54.  I feel like this stock is a buy, but I expect the ascent from here to be slow.  Ionis is 12.60% of my portfolio.

Twos:
Citigroup (C, $58.07, +39.02%) - I've held this bank for a long time as a play off a turnaround which seems to be taking shape.  Focus has been on tax reform, regulation reform, and Fed rate hikes.  These are seen as catalysts for future growth and has helped the stock reach the levels it's at.  I do believe people are also overlooking international growth and that is Citigroup's ace in the hole, in comparison to most of its brethren.  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 catching its breath lately.  After their last quarterly report, there is some concern around their NIM estimates, though they appear exceptionally conservative - predicting no more rate hikes this year (and one has just happened).  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 now show signs of a stock in the middle of a pause.  In the multi-year charts, the MACD is flat and fluttering back and forth over its line while momentum has died down (though it's important to note that the multi-year and weekly MACDs are now decidedly bearish along with the daily).  The OBV and RSI continue to sit well on their positive trends, though.  The weekly charts show the same trends as the multi-years, though, with stronger and flat momentum.  The 50 DMA appears to be a floor around $59, and its a floor proving to be stronger than I originally thought, given the time its taking to reach it as well as the fact that factors like rate hikes are favorable to the stock's future.  Daily charts show some weakness, with a RSI that's rolling over as well as down trending momentum and a MACD that's flat and crossing over negatively.  That said, the RSI hasn't broken through its trend lines, so this might be a natural result of the pause.  I still am very confident in Citi's long-term upward trajectory but believe this pause to be healthy for the stock.  The next catalyst will be the results of the next CCAR, which should hopefully allow the company to return more capital to shareholders through dividends and buybacks.  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, thus a $68 price target.  Citigroup is 16.21% of my portfolio.

Cedar Fair (FUN, $68.10, +22.01%) - 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 decide to stay home more and feel more comfortable with an improving economy.  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, they're also looking to open a junior sports venue on its property next to one of its parks.  Interest is already looking positive for new forms of cash flow.  This year, the company feels confident that they will hit their $500M in EBITDA target, which is a year faster than originally planned.  When looking into the technicals, I see a stock that's on a long term up trend, but taking a much needed pause.  All of the key long-term indicators are set up nicely, and with this week's slight pullback the indicators that were overbought are starting to come out of that state.  The MACD, OBV, and RSI are all positive.  There are similar indications in the weekly  charts, but the dailies are looking a bit more negative.  The MACD is bearish short-term and momentum has been waning.  The RSI is basically flat short-term while still on a positive long-term trend and the OBV is still slowly on the rise, diverging a little from the price, which I believe indicates positive results in our future.  I'd say that my downside risk is still in the $62 - $65 range where $65 area has support by the 50 DMA and $62 is the 200 DMA.  I estimate 2017 earnings of $3.57 and a multiple of 20.  As such, the 2017 price target is $71.50, with an early 2018 EPS estimate of $3.93 and 2018 price target of $78.  With a 5.02% yield, down side seems a bit more limited and I'd start buying when yield hits 5.5% (about $62.50).  Rate increases by the Fed could cause the more unstable hands to pull out of the stock, creating buying opportunities.  Cedar Fair is 16.76% of my portfolio.

Home Depot (HD, $147.71, +137.76%) - 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.  I believe the concept of people wanting to spend more time at home has them investing more in the home.  The stock was choppy to start the year, but it since has broken out on positive home builder numbers, economic news, and the fact that it's one of the best retail plays in a bad retail sector.  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 wasn't opening more stores (they expect to open 6 new stores this year) and after the 2016 earnings results, I expect them to do that again, despite their own down played guidance.  Additionally they have increased their share buyback plan and are now returning 55% of the prior year's earnings stream as dividends, up from its previous 50% mark.  The multi-year and weekly charts are strong, perhaps too strong.  The MACD, OBV, and RSI are all positive, but showing signs of turning down.  The momentum in the multi-year is showing a little weakness while the weekly is still quite strong.  There are also many other indicators that are in overbought territories.  The daily charts are showing more weakness with down trending momentum, a short-term bearish MACD, and a RSI that's flattening.  The OBV is still on a positive trend, though.  I believe the upside in the short term is a bit limited and we're more likely to see the stock pull back a bit - likely to $140 or lower to make the trend of the 50 DMA less steep.  I'd exercise caution and consider if it makes sense to lock in some profits.  I estimate 2017 earnings of $7.25.  I estimate a multiple of 22, giving a 2017 price target of $159.  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 13.39% of my portfolio.

Honeywell (HON, $124.77, +194.75%) - 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.  The aerospace division continues to be an area of concern lately with private jets, helicopters, and defense spending lagging expectations, but I believe this is a short-term event and management confirms this belief by stating improvements are expected to resonate come the second half of the year.  While CEO Dave Cote is stepping down this month, I have a large amount of confidence in a smooth transition to Darius Adamczyk.  It isn't typical to have such faith in transition, but this is a unique management team, very similar to what we saw when Home Depot went through their shift in new CEOs.  Taking a look at the charts, this stock is just like Home Depot.  It's been going on a major run for the last number of months to new highs.  In the multi-year and weekly charts the MACD, OBV, and RSI are all positive, but showing minor pullbacks - the RSI showing the strongest retreat.  Supporting indicators that were overbought are quickly pulling back to get under those lines.  Momentum was in a down trend in the multi-year charts and increasing in the weekly charts, though.  It's in the daily charts where we see the negativity.  Momentum has been in a down trend for the last couple weeks.  We've also seen the MACD short-term bearish over that time.  The RSI has been on a decline even longer than that, though from a wider view it's still on a positive trend.  The OBV has been on a down trend just as long as the RSI, but not as dramatically.  Supporting indicators that were overbought are now pushing towards oversold.  I don't think the stock is done pulling back yet, but we may see a bounce.  I wouldn't start considering purchasing shares of this stock until we see it test the 50 DMA.  Given that the company will announce first quarter earnings on April 21, I'm ok with the stock pulling back and taking a breather prior to going into that announcement.  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.  2018 EPS is estimated to be about $7.81 and have a price target around $145.  HON is 17.07% of my portfolio.

On Semiconductor (ON, $15.18, +66.89%) - 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.  The acquisition of Fairchild Semiconductor, which completed late in 2016, was meant to help expand their reach, capabilities and market share.  With the increased synergies that are now coming to fruition, they should be able to increase their value and it just so happens to coincide with a time when semiconductors and memory modules are hot, due to consolidation in the industry as well as some great reports from quarterly results.  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.  That said, they've clearly stated their focus of excess cash flow and gains from synergies is to be directed straight towards that cleanup.  Multi-year charts are very bullish with trends strongly positive in all indicators.  Supporting indicators which were overbought are starting to get out of that range due to the pullback and leveling we've seen from stock prices over the last two to three weeks.  The RSI and MACD still look positive with nothing particularly concerning yet.  In fact, the OBV could be indicating a possibility for another leg up.  The weekly charts are very similar, however, the RSI is much more flat here.  Momentum is also still on an incline.  This is a momentum type of stock, so it's something to keep an eye on.  When supply suddenly becomes excessive, this stock will turn quickly.  Finally, the daily charts show the results of the pullback we've been experiencing.  The MACD is bearish, but has finally flattened out.  The RSI is almost flat, but the OBV continues to trend upwards - leaving a bit of a divergence from price that leaves opportunity for upside in the future.  My biggest concern is how steep this run up is in the long-term charts and the historical patterns it relates to.  It's hard not to feel like we're reaching a peak in stock price, but with a stronger economy, that could be a head fake - especially as other semiconductor companies continue to post strong results and upside guidance, like AMD did recently.  At this time, the stock is well over my 2017 price estimate, though my estimate may actually be too cautious, given the overall environment.  Now that I have more information, I estimate 2017 earnings to be $1.19 and currently estimate 2018 earnings to grow to $1.30.  I still believe the right multiple for the stock is 13 times earnings due to the volatile nature of the stock.  As such, that puts a 2017 price target of $15.50 and 2018 of $17.  I have the stock at a 2 for its long-term prospects.  That said, I feel the stock has moved too much, too fast and will continue to consolidate for a little bit yet.  ON is 6.14% of my portfolio.

Pepsico (PEP, $112.12, +55.08%) - 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.  The company continues to outperform its peers (though calling Coke a peer is getting much more difficult) and posted nearly 4% organic growth against strong comps from 2015.  Interest rates and foreign exchange rates continue to be problematic and is a reason why management delivered cautious guidance of "at least 3%" organic growth in 2017.  They also increased their dividend, which helps keep the stock relevant against rate hikes.  Recently the stock has been on the rise - even despite an increasing interest rate.  It's somewhat baffling, but there are a lot of rumors around Kraft-Heinz being interested in an acquisition.  I don't see Pepsico willing to play that game, but the stock is likely on the rise due to speculation there anyway, making the current price potentially unsustainable.  Shifting to the charts, things continue to look positive on the surface.  The multi-year OBV, RSI and MACD are strongly positive, but we also have some supporting indicators in overbought territory.  Weekly charts look pretty much the same as multi-year.  In both, money flow is approaching overbought regions.  When it gets here, it's unlikely the buying support is going to be able to sustain itself.  Finally, the daily charts look stressed to me.  While the MACD, OBV, and RSI are all positive, both the RSI and the OBV act like they're hitting a ceiling and are unable to go any higher on their trends.  If the RSI does go much higher, it then becomes overbought too.  I feel this is a great stock to help diversify your portfolio and build over time into the weakness, I just don't think now is the time to be getting in it.  If anything, taking some profits might be wise.  I estimate 2017 earnings of $5.14.  Because I believe the stock deserves a premium I'm setting the multiple to 21 and my 2017 price target to $108.  It's important to note that in a likely raising rate environment, I anticipate more downside potential than upside and that I expect it will grow slower than the S&P 500.  This is all about having a diversified portfolio and it will be a great stock in a mediocre sector.  Should the market take a fall, this stock will have the ability to bolster me some.  I would look at potentially buying more shares around $103.  PEP is 9.97% 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.