Weekly Portfolio Summary

Once again, it's been awhile since I've provided an update or completed missing quarterly reviews.  Time to put in some extra work and get caught up.  To start out with, my portfolio has been under performing the S&P 500 this year.  As of today, I'm just over 2% behind the S&P 500.  I'm finding this to be quite frustrating and am trying to figure out what/how/why that is the case after last year's over performance.  I have yet to figure out the solution, as many of these companies are still just as great as they always have been, but they've been out of favor in the market for the last couple months.  This is potentially a temporary thing and a test to my conviction in the holdings.

That said, there are other factors to consider as well.  The US Dollar has leveled off and shown a little strength with the rise of interest rates and lack of similar actions in other reasons, for example.  And to top that off, Trump just elected Larry Kudlow as the new Economic Advisor - someone renown for preaching about "King Dollar" and a strong dollar as an indicator of economic success.  If these are trends to expect moving forward, many of my high performing companies could get some negative impact due to the fact that many of them are globally international companies and their earnings from other regions won't translate as strongly as before.

Another factor to consider is economic growth and how it has a tendency to affect the stock market.  First is interest rates.  As growth - inflation in particular - heats up, rates rise.  The 10 year treasury has been pushing towards 3% up until recently and this has put pressure on the market overall, clearly not as much as my portfolio, though, which is much heavier in large-cap stocks.  I bring up large-cap stocks because another thing to consider is how smaller cap stocks have a tendency to become more favorable due to their accelerating growth during robust economic times.  It's entirely possible that this could be a factor to my portfolio's under performance, but it's not.  The Russel 2000 (an index used to measure the performance of small-cap stocks) is performing pretty much right in line with the S&P 500.  So maybe I'm in the wrong sectors?  Well, the best sectors have been Tech (especially semiconductors) and Consumer Discretionary.  My portfolio contains both tech (in form of a high growth in Apple and a semiconductor in On) and Consumer Discretionary (in the form of Home Depot).  The two of these sectors combine for about 26% of my portfolio - which isn't all that bad when you take into the account of needing to be diversified.  If I allocated the maximum capable in these two sectors I'd be at 40% of my portfolio, but there are also more than 5 sectors to the S&P 500 and I probably want to be more broadly diversified than that 40%.  Looking at the sector spiders performance year to date, there are two other sectors out performing the S&P by less than 1% - the Financial and Healthcare sectors.  That's 4 sectors out 10 outperforming and 2 of them aren't out performing by much.  So how is the S&P 500 up 3%?  Weighting.  These sectors aren't weighted evenly in the S&P.  Want proof?  The S&P 500 Equal Weight Index (EWI) is up only 1.56 year to date - still out performing my portfolio, but not by a lot.  I do have a holding in one of the bottom three performing sectors - consumer staples (Pepsico, which has slightly outperformed that index), but it is also only about 7% of my portfolio.  So in the end, this is really about my individual holdings.

Looking at those holdings, Home Depot has significantly under performed the S&P 500 and the consumer discretionary index.  It is also why I took out my cash position back around the time that the stock was about to start it's descent as I saw potential for the stock to correct.  Citigroup has also under performed the financials and the S&P 500, which is rather surprising, given its lower value to other banks, exposure to other areas of the globe which is growing, and the general favor of the index.  It's hard to believe, but Ionis is out performing the S&P, the Healthcare index, and the Biotech index (IBB).  This is a stock I would've thought to be impacting me given its wild swings and recent downward pressures, but that's not the case.  Honeywell is another stock under performing its sector, which was already under performing the S&P.  The stock ran a lot, it needed to correct.  I had considered taking out my cash back when it was around $160, but I decided against it because I didn't feel I could easily get back in at a good price and didn't want to miss out on upside potential with the upcoming spinoffs.  So I've chosen to take this hit.  Finally, I have Apple which has out performed the S&P, but not the tech index, and On Semi, which has blown both out of the water (but is only about 6.6% of my portfolio).

In the end, my performance appears to be due to my holdings.  Does that mean my holdings are bad?  Not necessarily.  This could be a correction in what was some of my strongest holdings in 2017 and they could still have room to run.  But it seems clear that I have some deeper work in front of me to assess these under performing holdings as well.  Taking moves to raise cash in holdings that really out performed the market can be a sound strategy to protect yourself from these situations, but you also have to know when and where to get back in or whether to just cut and run to find new holdings.  I think this is where the market is getting harder and where my next set of lessons in both my own emotional state and disciplines is going to happen.  I may continue to under perform if I don't get these under control.  Under performance isn't always a bad thing.  You need periods like this to buy new positions (of course that means you need to have cash to do so, meaning you sold into high performance).  Stocks need time to recharge to go higher and it's possible that's why this portfolio is doing just as much that it's possible that I need to make some changes.  Welcome to the challenges of managing a portfolio.  The last few years were easier for me, so now it's time to whip myself into shape.

Before getting into my rankings, I realize I never did a recap for Cedar Fair's quarter.  This is a failure on my part, but I can say there was nothing terribly alarming that came from the quarter.  There's strong potential for the year ahead, but I do need to do more work to understand the risks coming and how a rising rate environment will impact a stock like this.  I also did not do an analysis of Home Depot's fourth quarter, which was an utter blow out.  I didn't report on this stock because I am playing with the house's money on that holding right now.  Should I decide to get back in, I will go back to my reporting.  

  

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.

Playing with the
House's Money

Ones:
Apple (AAPL, $164.94, +4.84%) - I started a position in Apple because I wanted some hyper-growth in my portfolio to help keep it charged going forward.  While the company's ability to continue to come out with new versions of its flagship phones and devices is important, as is coming up with new devices, my view of the company is more about its service segment now - how it can create recurring revenue streams that just don't stop because people will give up their iPhones and its services only after giving up everything else.  The stock under performed the S&P 500 last week, as decided to avoid the stock as it's struggled with the $180 mark.  Charts are showing signs that the stock has become quite unfavorable.  The company heavily relies on China for portions of its sales and the Tariff "war" with China is striking fear into those who hold the stock.  It's now approaching the 200 day moving average and it's always proved fruitful to buy when it goes below.  I don't expect this to be different.  My 2018 earnings estimate is $11.50 and the price target is $195 based on a 17 multiple.  While my position is full, I still rank the stock a 1 as I feel it would be a great stock to buy on a dip from this area.  AAPL is 11.15% of my portfolio.

Citigroup (C, $67.90, +67.01%) - In a market with growing economy, tax benefits for corporations, and a rising interest rate, I don't know how financials - especially banks - can't be a holding in your portfolio.  If they can't outperform the overall market, there's something extremely dangerous going on.  Yet while I say that, here's Citigroup, significantly under performing both the market and its sector.  Granted, Citigroup's stock rose a lot in the last year in anticipation of this, however, it's still quite undervalued in comparison to its peers.  It's also one of the highest capitalized banks, so it has money to work with and is better protected from downturns.  Despite being in the right sector, the stock still shows weakness ahead, as momentum, RSI, and OBV are all trending downwards.  Despite these trends, I still believe the stock and company have a lot of positives in front of them.  The Fed's stress tests will be coming up, and I expect this to turn out to show positive results which will allow the company to return more cash to shareholders through dividend increases and share buybacks.  The Fed continues to raise rates and the economy is strong.  The 10-year has retreated as fears of recession from trade wars kick in, but they still seem to be unfounded.  Now we're reached a point where we have a bit of a floor in the charts, as our price point is around the same price the stock hung at from June - September last year.  The stock is well into corrective territory and pushing towards recessive.  I have estimated a 2018 TBV of $74.  My price target is now $81.50 and I'm raise my rating to a 1 based upon valuation.  This stock has gotten extremely cheap, despite the rises in rates.  It is possible that the global economy could start cooling due to all the tariff chatter, but I don't expect Citigroup to be severely impacted by it.  I'm considering buying shares I sold last year in the $64 - $67 range.  Citigroup is 11.48% of my portfolio.

Home Depot (HD, $171.80, +176.61%) - I continue to hold Home Depot for the desired home experience.  Millenials are starting to form more and more households and buying houses.  The economy is getting better and people are getting some tax money to put into things like home improvement.  While I believe the company is still in its middle innings of growth, the stock market has gotten much more hesitant on the name as rising rates, and dampened housing starts numbers have put pressure on a stock that was already correcting from its elevated prices.  In the quarterly earnings report, the company projected a 28% earnings per share increase from 2018 due to $4B in anticipated share repurchases and the reduced tax rate, placing the estimate at $9.31 - and this is coming from a company that has a long history of under promising, so keep that in mind.  The stock has retreated over 17% from its highs as the stock approaches its 200 DMA.  If it goes below, I think the stock is a screaming buy.  I had said when I sold my cash position that I would consider getting back in if it pulled back to around $172.  I never expected it would actually happen, but I am now carefully looking for a potential entry point.  The market, itself, is very volatile, so I may not be ready to dive in just yet.  The chart is showing some early signs of a bottoming process, but nothing is for certain yet.  I'd rather buy going back up than on the way down right now.  I'm giving the retail giant a multiple of 23 for the solid management and earnings growth which has consistently been in the 12 % - 15% the last few years (including buyback impacts).  This puts my 2018 price target at $214.  HD is 8.13% of my portfolio.

Twos:

Cedar Fair (FUN, $64.50, +13.17%) - This stock is what I'd call a blend.  It's clearly a defensive stock, given its high (over 5.5%) yield and the fact that it's an MLP.  However, the stock is very much a growth stock too, as it ties into the societal needs for experiential getaways.  Add in the tax benefits which should be strong for this mostly US-based company and the future benefits of the capital expenditure clauses and it's possible that this company's growth may accelerate in coming years as they look to build new rides.  This year they will be opening four new rides and it is expected to be a strong draw to those parks.  While weather impacted the company's ability to deliver in 2017, 

I don't expect that trend to be consistent.  The stock's performance has been choppy through the course of the year, but appears as though it might be preparing for a breakout.  It needs to clear the $67.50 region to break through the 200 day average, which has been a ceiling for a little while now.  I see momentum gaining and a little positive build in the OBV and RSI.  It will be important to keep an eye out for tax rules and changes that may impact Cedar fair, as some statements have been getting made which have hurt pipelines, in particular, over the last week.  I maintain my multiple to 21 and reiterate my 2018 earnings target of $3.48.  This leaves my 2018 price target at $73 and would put the dividend at 4.75% at current distribution rates.  At this point, I think the stock will find it harder to maintain support unless they show advanced growth.  Cedar Fair is 13.40% of my portfolio.

Honeywell (HON, $143.28, +238.47%) - Honeywell is my preferred choice for an industrial play right now.  As I said, with global growth taking shape, industrials is where the big money is going to go.  Honeywell, as a conglomerate has itself in various parts of the industrial economy, but their biggest space is in aerospace, which appears to be really starting to take off (no pun intended).  Add onto that, the fact that the company is going to spin out its home and turbo businesses, both which are very strong in their own rights, you have a lot of potential for value creation in front of us.  Plus with that extra cash and focus, they are anticipated to be a heavy player in the M&A market.  If they don't find something they like, the money will be tagged for share repurchases instead.  That's a primary reason why it's difficult to even consider selling any of the position at this time.  The stock has sold  off more than 11% and while things still look a bit shaky, I believe the stock is preparing to go higher.  That doesn't mean the stock is done going down yet, though.  The stock has broken through a very long term 200 DMA and it needs to recover above it in the course of the next couple weeks.  If it can break through that, the stock would likely go on a run.  I reiterate my multiple of 21 while noting that 22 isn't out of the question.  This maintains a 2018 price target of $166, though a multiple of 22 could bring the price to $174.  HON is 14.53% of my portfolio.

Ionis Pharmaceuticals (IONS, $47.74, -5.58%) -  I chose this as my speculative stock to try to make significant gains in my portfolio.  It is a pick that is in a sector that may not perform the best in this economic state, however, it's also a company that has a couple new drugs going to market this year and the sector has been remarkably resilient.  Their ability to get to market and be successful in doing so will be key in my speculation being successful.  Information we receive between now and when the company reports in February may be a key factor that decides the fate of this year's performance.  The stock's technicals aren't looking very good, frankly.  It is possible that the stock has started a bottoming process, but the OBV and RSI both have long-term bearish trends.  That said, the OBV has a positive short-term trend line and the short-term MACD has gone short-term bullish and could cross into the overall bullish side of things.  While this potential is nice, the OBV is clearly trending down, indicating no one really wants to buy the stock.  Despite the numerous postings out there, the company's drugs up for release this year isn't getting a lot of respect.  Add onto that a rising rate environment and people tend to be less willing to pay up for the out years.  At this time, I continue to see the 200 DMA as a ceiling to the stock's progress.  I'm estimating 2018 earnings of around $0.10.  My price target for 2018 is at $68, given no drug approvals or denials at this time.  I feel like this stock is a buy if it drops back into the mid-forties, but I expect the ascent from here to be slow.  Ionis is 11.30% of my portfolio.

On Semiconductor (ON, $25.04, +178.04%) -   This tech stock still has strength as it plays in the Internet of Things (IoT), automation, and power saving.  That said, the stock has been climbing like I haven't seen in years.  I expect there to be a top, the question is when.  After the last earnings result, it doesn't appear that the time is on the horizon just yet, as they provided a strong beat and encouraging forward guidance.  Sensors and IoT is causing for the continued surge the company is seeing and they continue to get design wins.  While the stock has had strong performance lately, it is looking a little toppy right now.  RSI is over bought, and the MACD is looking to roll over.  That said, the OBV shows decent support yet too.  Perhaps the mild pullback we've seen the last few days is what we get as the stock recharges to go higher.  On top of that, this stock and many other semiconductor stocks got hit hard after Micron reported numbers that beat, but provided guidance that made many fear that DRAM demand as decreased and we're about to see a cut back in IT profits.  Based on the earnings results, I raised my 2018 EPS estimate to $1.73 and am increasing my multiple to 16.  The multiple reflects what people are willing to pay in this environment, though it might be a bit high for traditional standards.  As such, that gives us a  price target of $27.50.  While I may be playing with the house's money, I could easily give much of it up and not see it recover for many years, when dealing with a tech name like this.  As such, I'm watching the stock over the next month or so as this is typically an area where it tends to sell off.  ON is 6.69% of my portfolio.

Pepsico (PEP, $106.15, +46.82%) - This is the one stock I hold that's purely defensive, being that its part of the consumer staples sector.  Despite the sector, Pepsico has clearly been a best of breed name among consumer packaged goods companies, showing an ability to grow its products and quickly correct issues as they arise.  As interest rates rise and the economy grows, though, people won't pay as much for the future earnings of a slow-growth company.  As such, the stock's price may stay relatively flat while earnings increase and the multiple slowly decreases.  That said, it's important to be diversified and hold something that can help your portfolio out when there's a negative rotation and the company's 15% dividend increase helps make it a little easier to hold the stock, as it keeps the yield around 3%.  The stock has dropped below its 200 day moving average, which has proven to be a good buying point, historically.  However, it also doesn't appear to be done going down.  Rising rates usually get lower multiples for stocks such as this, plush it's doubly hurt by all of the tariff talks as Pepsico is also trying to grow in China.  I believe we're in a situation where the stock is going to be relatively stagnant due to the strong economic times.  The company will continue to do well and the 3% dividend will be helpful in holding the stock over time.  That will depend a lot on the state of the economy and interest rates, though.  I estimate 2018 earnings of $5.75.  Given the strength of this name in the sector as well as the global economic situation, I am increasing my multiple to 21, which puts my 2018 price target now at $120.  I do caution that it's possible that multiple is starting to decrease already, though, with the down side risk of a multiple of 18 (putting a downside target of $103.50).  PEP is 7.18% 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.