EB Weekly Portfolio Report - Sunday, May 17, 2020

Tom Bowley - May 17, 2020

Spring Special

I want to make sure that everyone knows that we are in the midst of a Spring Special, which was announced last week. It will run through this Saturday, May 23rd. If you have a monthly subscription or if you're an annual member and would simply like to extend your membership at the best terms possible, the deal won't get any better than right now. Our regular annual membership is $697 for 12 months ($58/month), but for a limited time, you can extend for 14 months for that same $697 ($50/month), so there's a two month bonus. For those currently on a 30-day trial, you too can take advantage of this special through May 23rd. The 14 months would be added to the end of your trial period, so you don't lose the balance of your "free" period by extending. I just want to make sure those on trial understand that. I feel like the timing of returning to EarningsBeats last September could not have been much better given the recent volatility. I hope that my work and the work of our entire team at EB.com has helped guide you through a very difficult period in 2020. We wish everyone health and prosperity over the remainder of 2020. We would like to thank you for your support and loyalty by offering this Spring Special, so I hope you'll take us up on it. For more details, you can go to earningsbeats.com and click on the "Webinar Special" tab at the top of the page.....or simply CLICK HERE. Thanks again for supporting me in my return to EarningsBeats!

Upcoming Earnings Reports

According to Zacks.com, the following companies will be reporting earnings this week and each is a component of one of our portfolios:

Monday, May 18: None

Tuesday, May 19: None

Wednesday, May 20: None

Thursday, May 21: DECK, ELF (these stocks will be removed on Tuesday, so technically they'll report earnings after being removed from our portfolios)

Friday, May 22: 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 are being changed for our May 19th "draft" day last week (changes for the upcoming quarter are in bold italics):

We are removing the Character Change portfolio and adding a new Strong AD portfolio
There are 10 leading stocks from up to 10 leading industries in each portfolio (at the time of selection). Generally, there will only be one stock per industry group, but there could be exceptions.
They are held for an entire 90 day period, with no stops in place. We strive for consistency, transparency, and simplicity in our portfolios. EB.com members may hold these stocks for the entire 90 days, trade them, use stops, etc., but for purposes of our calculation, we will make no exceptions to our "buy and hold for three months" strategy.
Every stock will generally be held through ONE earnings report
The expectation is that relative winners will carry the portfolio to outperformance
They will all be entered into as of close on Tuesday, May 19th; members may choose to try to time better entries, but EB.com will "purchase" as of May 19th's closing price
Primary objective is to outperform the benchmark S&P 500

Here are several considerations for EB members:

I would expect the Strong AD and Aggressive portfolios to be the riskiest, followed by the Model portfolio, and then the Income portfolio
The Strong AD portfolio will be selected from a combination of rising accumulation/distribution lines and SCTRs above 80 at the time of selection. It will be our only portfolio that does NOT require a revenue and EPS beat in its most recent quarterly earnings report
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
I believe the larger drawdown on the Income portfolio last quarter was an anomaly occurring as a result of the pandemic as many defensive, higher-yielding companies uncharacteristically underperformed during a market decline.
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:

The Model portfolio added to its remarkable outperformance vs. the benchmark S&P 500 last week and inception-to-date, crushing it by more than 5 percentage points. All of our portfolios performed on a par with or better than the S&P 500 last week, but the CC portfolio was our weakest. I have decided to eliminate this portfolio as we move forward, replacing it with a Strong AD portfolio to attempt to take advantage of the recent paradigm shift.

Weekly Summary

Benchmark S&P 500:

The S&P 500 fell 2.26% last week and continues to battle its overhead 20 week EMA:

The S&P 500 is being held back by industry groups that are showing tremendous relative weakness. For instance, since the March 23rd bottom, the S&P 500 has climbed more than 30%. But the following industry groups have lagged far behind that recovery, especially the first group:

Airlines ($DJUSAR)

Delivery services ($DJUSAF)

Banks ($DJUSBK)

Hotels & Lodging REITs ($DJUSHL)

Retail REITs ($DJUSRL)

Drug retailers ($DJUSRD)

Model Portfolio:

The Model portfolio had another outstanding week, rising 2.78%. Here's the updated inception-to-date chart of the portfolio:

Here are how the Model portfolio component stocks performed last week:

SHOP's outstanding run continues and biotech ($DJUSBT) performance has been a catalyst for VRTX breaking to fresh all-time highs. TSLA was the only Model portfolio stock to underperform the S&P 500 last week and its relative underperformance was fractional.

Aggressive Portfolio:

The Aggressive portfolio easily outperformed the S&P 500, but it did drop slightly (-0.10%) last week. Here's the Aggressive portfolio chart since its inception on May 19, 2019:

Here are how the Aggressive portfolio component stocks performed last week:

SYNA held back what could have been an even better week for the Aggressive portfolio after tumbled on Friday following new restrictions being placed on China technology giant Huawei by the Trump administration. Huawei is a large customer of SYNA.

Income Portfolio:

The Income portfolio fell 1.88% last week, which wasn't a good week, but it did manage to outperform the S&P 500 - the silver lining. Here's a look at the inception-to-date chart:

Here are how the Income portfolio component stocks performed last week:

Another biotech (ABBV) had a very solid week, but further weakness in MAA and OMF held back the Income portfolio as they have throughout this pandemic.

Character Change Portfolio:

The CC portfolio was once again our worst performing portfolio, declining 2.49% for the week. Here is the inception-to-date chart since November 19, 2019:

Here are how the CC portfolio component stocks performed last week:

LITE and IPG made strong performance last week nearly impossible for this portfolio. LITE does have solid price support in the low-60s, so I'd expect a bounce from that level should we get there:

While most of the stocks in our 4 portfolios have held up quite well, LITE has definitely turned more bearish. Its peers in the telecom equipment group ($DJUSCT) have actually outperformed the benchmark S&P 500 over the past week, but LITE's relative performance has broken down (red circles). Also, note the recent price highs with a deteriorating AD line. Warning signs were building and now the stock's price action is confirming those signs. Thankfully, we'll be exiting LITE on Tuesday, along with all of our portfolio stocks, as we look forward to another quarter ahead.

Summary

We're two days away from filling out our portfolios for next quarter. I'm really excited to begin a new journey with a brand new portfolio - the Strong AD portfolio. It comes at the expense of eliminating the CC portfolio, but at EarningsBeats.com, we want to go with what works. Two straight quarters of underwhelming performance leaves me little confidence in the strategy of the CC portfolio. Instead, we have witnessed the power of the Strong AD ChartList the past two months. The unveiling of this portfolio also will represent our first portfolio where fundamentals are not the primary factor in selecting stocks. The Strong AD portfolio will require excellent relative strength (minimum SCTR score over 80) and a mostly rising AD line, which is indicative of institutional accumulation.

I hope you'll be able to join me on Tuesday at 5:30pm ET for the actual selection. If not, no worries as the webinar will be recorded. Prior to Tuesday's webinar, we'll be providing both members and non-members a Sneak Preview of our Top 10 Stocks webinar. That will occur on Monday at 4:30pm ET. The purpose of this webinar will be to discuss the strategy behind these portfolios and to review quarterly and inception-to-date results. This webinar also will be recorded for those who are unable to attend live.

I hope you can join me!

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."