EB Weekly Portfolio Report - Sunday, August 2, 2020
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, August 3: KLAC, CLX, RNG, PTON
Tuesday, August 4: ATVI, ENPH, EVER
Wednesday, August 5: REGN, HUM, W
Thursday, August 6: EVBG
Friday, August 7: 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 changed for our May 19th "draft" day recently (changes for the May 19 to August 19 quarter are in bold italics):
- We have removed the Character Change portfolio and added 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.
Weekly Snapshot
Here's a weekly recap:
It was a very solid week of outperformance for our portfolios.
Weekly Summary
Benchmark S&P 500:
The S&P 500 gained 1.73% last week, successfully testing its 20 day EMA on Thursday. It was an up-and-down week, but the S&P 500 closed near its high for the week and managed to close above key gap resistance from February 24th of 3257:
As you can see, it wasn't by much, but hey, a close above resistance is a close above resistance. It beats the heck out of the alternative. It was honestly a big test for the market as we'd seen quite a rise heading into perhaps THE most important earnings evening of the entire season - Thursday after the close when Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB) all reported quarterly results. All but GOOGL saw tremendously positive reactions on Friday morning. After fluttering a bit intraday, the final two hours on Friday completely belonged to the bulls. Check out this 5 day, 10 minute chart of the SPX:
It's always nice to finish strongly in the afternoon and we definitely saw that on Wednesday, Thursday, and especially Friday.
Model Portfolio:
The Model portfolio surged another 5.69% last week, putting more distance between the portfolio's performance and that of the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
The leaders last week - MTSI, AAPL, and SHOP - all posted excellent quarterly results and saw very positive reactions from Wall Street. Thus far, 7 of our Model Portfolio stocks have reported quarterly results. All 7 have beaten revenue estimates and only ZYXI has failed to beat EPS estimates. ZYXI matched its EPS estimate of $.09 and, as a result, it was our only Model Portfolio stock to lose ground last week.
Aggressive Portfolio:
The Aggressive portfolio soared 7.82%, best among our 4 portfolios, and it crushed the benchmark S&P 500. Here's the Aggressive portfolio chart since its inception on May 19, 2019:
Here are how the Aggressive portfolio component stocks performed last week:
9 out of 10 Aggressive Portfolio stocks rose last week, including a huge 19% advance in Wayfair (W). W reports its latest quarterly results on Wednesday and it's quite obvious that Wall Street is banking on a big beat. EVER also had a huge week, and that was the stock I featured in last week's portfolio report as it was approaching two key levels of support. It bounced beautifully from that area.
Income Portfolio:
The Income portfolio rose by 2.04% last week, also outdistancing 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:
Much of last week's strength was found in technology (XLK, +4.97%), not in health care (XLV, +0.41%). That really showed up in our Income Portfolio. Our technology stocks - AAPL, KLAC, and MSFT - did quite well, but everything else struggled, especially Eli Lilly (LLY), which surprisingly missed it revenue estimate. LLY did raise its EPS guidance quite significantly, however.
Strong AD Portfolio:
The Strong AD Portfolio tacked on another 5.04%, easily beating the S&P 500. Here's a look at the inception-to-date chart:
Here are how the Strong AD portfolio component stocks performed last week:
Like the other portfolios, we had a few big winners here in the Strong AD Portfolio that carried the entire portfolio. WING and PYPL both reported quarterly results that crushed expectations and the market rewarded them. MASI and VRTX, both in health care, were disappointing after they released their results. Both reported strong numbers, but the market reaction was not great. MASI is back down testing very important price support between 210 and 220:
The good news is that the medical equipment group ($DJUSAM) is strengthening. But, at the same time, MASI is showing weakening strength relative to its peers. That's a concern, so I definitely want to see MASI remain above price support and, preferably, to begin showing a rebound in its relative strength.
Summary
We made it through a very important week of earnings season with the S&P 500 nearing 3300 and now just a little more than 200 points away from its all-time high. Did you think we'd be talking about that 4-5 months ago? Fear continues to drift lower with the Volatility Index ($VIX) ending Friday's session at 24.46. Also, while the equity put call ratio ($CPCE) remains a bit low, it's definitely reversed off the extremely low readings in June and earlier in July. In other words, our sentiment readings would actually support a further advance in equity prices. But I will leave you with one word of caution - seasonality. The following is a 20 year seasonal pattern of the S&P 500:
Before you open your trading account and set everything to SELL for Monday morning, understand that the average August loss of 0.5% would represent 16 S&P 500 points. Also, Augusts have risen 58% of the time the last two decades, so the S&P 500 has a bigger tendency to go up than to go down. Still, we should all understand EVERYTHING we can about the stock market and it's not unusual to see a bit of selling or consolidation over the next two months. Sticking with leaders always makes me feel better.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."