EB Weekly Portfolio Report - Sunday, February 23, 2020
Upcoming Earnings Report
The following companies will be reporting earnings this week and each is a component of one of our portfolios:
Monday, February 24: EVER
Tuesday, February 25: None
Wednesday, February 26: None
Thursday, February 27: None
Friday, February 28: None
PLEASE NOTE: The above companies were provided after scanning the Zacks Earnings Calendar. My research is limited to what Zacks provides and I also can make a mistake from time to time, so please check for earnings dates for all companies that you own. We do hold our portfolio stocks through one earnings report, but every EarningsBeats.com member must make their own investing/trading decisions about holding stocks into earnings reports as it's the most volatile (risky) time to own a stock.
Portfolio Rules and Objectives
Here are the common traits and objectives of each portfolio, some of these were just changed for our February 19th "draft" day last week (changes for the upcoming quarter are in bold italics):
- There are 10 leading stocks from up to 10 leading industries in each portfolio (at the time of selection) - the change here is to allow a second stock within the same industry group
- They are held for an entire 90 day period, with no stops in place - there will be NO stops. All stocks will be held for the entire period (members may choose to have stops, but we will not)
- Every stock will generally be held through ONE earnings report
- The expectation is that relative winners will carry the portfolio to outperformance
- They were all entered into as of close on February 19th
- We decided against having multiple entries for our purposes, but members were encouraged to enter based on whatever felt most comfortable
- Primary objective is to outperform the benchmark S&P 500
Here are several considerations for EB members:
- I would expect the CC (Character Change, formerly Value portfolio) and Aggressive portfolios to be the riskiest, followed by the Model portfolio, and then the Income portfolio
- The CC portfolio's strategy and composition was changed a bit in it second quarter, as we decided to include companies that have broken out of a consolidation range, not just those with breakaway gaps to end a downtrend
- The Income portfolio stocks will all pay dividends, with the expected average dividend yield to be at least 1.5%
- Drawdowns (losses) should be much milder on the Income portfolio, with more volatility expected on the other three; please review inception-to-date charts below to gain an idea of the volatility associated with each
- You should own or trade these stocks in whatever manner is most comfortable for you; while we will buy all 10 stocks in the manner identified above, feel free to trade certain stocks or wait for pullbacks if the stocks are overbought
- We have no idea what risk each member is willing or able to take. We are not registered investment advisors so be sure you understand the risk you take. Please consult your financial advisor.
- EarningsBeats.com shareholders/employees may own all or some of the portfolio stocks from time to time.
Snapshot
Here's a weekly recap:
Last week was a transition week as new portfolio stocks were revealed. The overall performance was a little weak, although the Aggressive portfolio did manage to significantly outperform the benchmark S&P 500.
Weekly Summary
Benchmark S&P 500:
The S&P 500 ran into difficulty last week, dropping 1.25% on the week. I mentioned last week that I thought it could be a challenging week based on short-term 60 minute negative divergences. Also, in my opinion, options expiration played a big role in the Thursday-Friday selloff.
Model Portfolio:
The Model portfolio started the week in good shape, but late-week selling trumped it and we ended with a 1.83% decline. Here's the updated inception-to-date chart of the portfolio:
Here are how the "new" Model portfolio component stocks performed on Friday, which was a rough day for growth stocks:
Showing the weekly performance of these stocks would be misleading as we've only had them for two days. The above gives you an idea of how badly the Model portfolio behaved on Friday.
Aggressive Portfolio:
The Aggressive portfolio showed considerable relative strength, rising 0.67% during an otherwise rough week. Here's the Aggressive portfolio chart since its inception on May 19, 2019:
Here are how the Aggressive portfolio component stocks performed on Friday:
EVER had a strong day on Friday and it reports its latest quarterly results on Monday after the bell. It's certainly acting as though it will deliver a strong report.
Income Portfolio:
The Income portfolio underperformed slightly last week, falling 1.45% . Here's a look at the inception-to-date chart:
Here are how the Income portfolio component stocks performed last week:
ABBV, the best performer on Friday, ignored the overall market weakness and sports an impressive 5% dividend yield.
Character Change Portfolio:
The CC portfolio fell 1.84% to trail the S&P 500 for the week. Here is the inception-to-date chart since November 19, 2019:
Here are how the CC portfolio component stocks performed on Friday:
All 10 stocks were down on Friday, but the biggest loser (LITE) did see buying once it hit key gap support:
The worst part about this chart is the relative weakness of the industry group. But LITE has clearly been a big leader in the space, outpacing its peers and the S&P 500 by a wide margin.
Summary
Well, our 5th quarter is in the books for the Model portfolio and it's outperformed the S&P 500 in 4 of those 5 quarters. Both the Aggressive and Income portfolios now have three quarters of performance and have outperformed in 2 of 3. The Character Change portfolio is our newest portfolio, starting just last quarter, and it underperformed the S&P 500.
I believe the stock market will continue to push higher throughout much of 2020, though periodic selloffs and consolidation are to be expected from time to time. It's difficult to say whether the selling on Thursday and Friday grows deeper this week, but we do remain in a difficult historical period until mid-week. I wouldn't rule out further downside to start the week, but I'd consider putting idle cash to work as we head toward March.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."