EB Weekly Portfolio Report - Monday, May 25, 2020
Happy Memorial Day!
Thank you to all of those who have paid the ultimate sacrifice for our freedoms here in the U.S. And thanks to all of those currently serving. I'd also like to thank everyone throughout the world who has been on the front line during this pandemic. We appreciate all your efforts and sacrifices!
Spring Special
Today marks the end of our Spring Special. We extended it from Saturday through today to coincide with the end of the long holiday weekend. Be sure to take advantage of our best deal of the year! CLICK HERE for details.
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 25: None
Tuesday, May 26: None
Wednesday, May 27: None
Thursday, May 28: DG
Friday, May 29: 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.
Quarterly Snapshot:
On Tuesday, May 19th, last quarter came to an end. It was a quarter that we'll likely never forget as the COVID-19 pandemic engulfed our personal and financial lives. We saw a huge decline, followed by a significant rebound, and a divergence in performance since the March 23rd bottom that likely has never been paralleled. Many industries have had difficulty simply staying afloat during this paradigm shift, most notably airlines ($DJUSAR) and many small businesses. Other industry groups have actually benefited and grown market share during these past several weeks. Fortunately, our portfolios here at EarningsBeats.com held up extremely well overall. In fact, both our Model and Aggressive portfolios crushed the S&P 500. Here were the final quarterly results by portfolio:
Despite a very difficult quarter, the Model Portfolio managed to outperform the benchmark S&P 500 by more than 18 percentage points. The Aggressive Portfolio, not far behind, outperformed by more than 14 percentage points. The Income Portfolio was our problem child. A decision was made to be a bit more defensive with this portfolio back in February since we were at an all-time high. But the more "defensive" components actually performed worse than the aggressive components, which I certainly wouldn't have expected back in February. But it happened so we'll look to rebound in this portfolio in the next quarter.
The CC Portfolio was uninspiring throughout the two quarters we've held it to date, so it was decided to terminate it and replace it with the Strong AD Portfolio in the upcoming quarter.
Weekly Snapshot
Here's a weekly recap (since Tuesday's close):
This is actually the performance since Tuesday's close as our portfolios were all reconstructed at that time.
Weekly Summary
Benchmark S&P 500:
The S&P 500 climbed 1.11% from Tuesday's close, but the back and forth action continues at its overhead 20 week EMA:
Gap resistance at 2972 and the 50 week SMA at 2998 are the two immediate resistance areas the bears will be trying to defend in the week ahead.
Model Portfolio:
The Model portfolio jumped 1.79% since the unveiling of the "new" portfolio on Tuesday. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
Just keep in mind the above summarizes how these stocks performed ALL of last week. They were included as part of our Model Portfolio as of Tuesday's close.
Aggressive Portfolio:
The Aggressive portfolio lost 0.66% and lost ground to the S&P 500 since Tuesday's close. Here's the Aggressive portfolio chart since its inception on May 19, 2019:
Here are how the Aggressive portfolio component stocks performed last week:
Income Portfolio:
The Income portfolio fell 0.23% since Tuesday's close, which trailed the S&P 500. Here's a look at the inception-to-date chart:
Here are how the Income portfolio component stocks performed last week:
Character Change Portfolio:
The CC portfolio was eliminated as of Tuesday's close after it essentially performed evenly with the S&P 500 over the last quarter.
Strong AD Portfolio:
The Strong AD Portfolio opened its first three days of trading by narrowly outperforming the S&P 500, gaining 1.25%.
Here are how the Strong AD portfolio component stocks performed last week:
Summary
Well our next quarter is underway. Our Model and Aggressive portfolios are now significantly outperforming the benchmark S&P 500. Our primary focus remains on strong fundamentals (beating both revenue and EPS estimates in the most recent quarter) and solid relative strength. We did make an exception this quarter and added a new Strong AD Portfolio to hopefully benefit from stocks that appeared to be accumulated through the pandemic. These are companies that Wall Street is suggesting should perform quite well under these trying circumstances.
After the quarter is over, we'll evaluate the results to all of our portfolios and make changes, if necessary. I do like the idea, though, of having one portfolio that does NOT require a revenue and earnings beat. There are reasons why Wall Street supports companies, despite their inability to meet forecasts. Having one portfolio based entirely on technical merits makes some sense, so I'll be watching the Strong AD portfolio quite closely throughout this quarter.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."