EB Weekly Portfolio Report - Sunday, August 30, 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 31: ZM
Tuesday, September 1: None
Wednesday, September 2: None
Thursday, September 3: DOCU
Friday, September 4: 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 our portfolios:
- 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 were all entered into as of the close on Wednesday, August 19th; members may choose to try to time better entries, but EB.com will "purchase" as of August 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 is the 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 at the beginning of the pandemic was an anomaly, occurring 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's always more fun to see our portfolios outpace the S&P 500, but that wasn't the case last week, especially on the Aggressive Portfolio, which endured one of its worst relative performance weeks since its inception more than 15 months ago. On the flip side, however, the Strong AD Portfolio remained on its hot streak and outperformed.
Weekly Summary
Benchmark S&P 500:
The benchmark S&P 500 powered forward last week, jumping another 3.26% and closing above 3500. It's leaving the February all-time high in its dust. The growth vs. value story remains alive, but with the 10 year treasury yield ($TNX) gaining 9 basis points to 0.73%, there was a significant rotation from bonds to stocks that helped to fuel the rally.....and rotation into areas that previously had underperformed during the pandemic. Here were last week's relative industry group winners:
The top 3 were recreational services ($DJUSRQ), airlines ($DJUSAR), and hotel & lodging REITs ($DJUSHL). Those 3 have literally been bottom-dwellers, leading the selloff back in March and April on mass distribution. Now we're seeing Wall Street grow fonder of these groups and I view this as EXTREMELY bullish action. Solid sector and industry group rotation is what drives a secular bull market. As some sectors/industries pause, others take over. The more groups that we see in bullish configurations, the more strength this bull market gains. While it may make for some short-term pain in our portfolios from time-to-time, it is absolutely essential for the health of the secular bull market longer-term - and it's that long-term strength that will help our portfolios over time, no matter what we own.
Model Portfolio:
The Model portfolio rose 2.64% last week, trailing the benchmark S&P 500, but only slightly. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
9 of our 10 Model Portfolio stocks were higher last week, keeping their relative strength completely intact. WING, the lone loser from last week, remains exceptionally strong on its weekly chart and is a clear leader within its restaurant & bar peers ($DJUSRU).
Aggressive Portfolio:
The Aggressive portfolio struggled big time last week, tumbling 3.37% and lagging the benchmark by nearly 7 percentage points. Here's the Aggressive portfolio chart since its inception on May 19, 2019:
Here are how the Aggressive portfolio component stocks performed last week:
Unlike the Model Portfolio, 6 of our 10 Aggressive Portfolio stocks finished lower, despite a nice gain overall in U.S. equities. The most obvious issue, however, was the Abbott Labs (ABT) announcement of a 15-minute, $5 COVID-19 test. That impacted all medical diagnostic companies, which included Quidel (QDEL) and GenMark Diagnostics (GNMK), a component of our Strong AD Portfolio. Here's a current view of QDEL:
While the ABT news was clearly a blow to QDEL in the near-term, it remains to be seen whether the current selloff is the start of a major downtrend or is a major opportunity. One positive from the selloff is that the selling ended in the first hour and there was a TON of buying in QDEL shares in the hours that followed. Visually, you can see that potential accumulation in the HUGE leap in the AD line and the hammer that printed with a long tail. Also, it enabled QDEL to completely fill its gap from May. But while there might be a couple positives to take away, clearly the huge drop was a major drag on the portfolio's performance last week.
Income Portfolio:
The Income portfolio fell 0.25%, also trailing the S&P 500 by a wide margin. Here's a look at the inception-to-date chart:
Here are how the Income portfolio component stocks performed last week:
Surprisingly, the volatility in this portfolio was quite high. MSFT, FDX, and QCOM attempted to carry the portfolio higher, but there was considerable weakness in several stocks, especially EBAY and DHI. Home construction ($DJUSHB, -4.36%) struggled as a group as interest rates moved higher, so that helps to explain the DHI weakness, but EBAY fell considerably during a week in which its peer group, specialized consumer services ($DJUSCS), closed at an all-time high. Personally, I believe this short-term period of consolidation and relative weakness will end favorably for EBAY. Here are two price support levels I'd watch:
It's not all that unusual to see a stock lose relative strength after setting a high and consolidating. I'd view this period as one of consolidation right now for EBAY. If the two levels of price support are lost, then EBAY could see additional technical selling in the near-term. A reversing candle at one of these support levels, however, would likely signal that the worst is over.
Strong AD Portfolio:
The Strong AD Portfolio surged 4.55%, and was the only portfolio to beat the S&P 500 last week. 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, the the Strong AD Portfolio had its share of misery with both GNMK and W. But there were plenty of winners to offset these two losers, namely NIO and FSLY, both double-digit percentage gainers. Both cleared key resistance levels - NIO to its all-time high and FSLY past the bottom of gap support near 90.
Summary
There are so many questions left to be answered in this quarter. Wall Street is definitely sending a message that it's not overly concerned about the long-term impact of COVID-19. It's even beginning to favor sectors and industries that were pummeled by this health care crisis. Throw is the upcoming Presidential election and there's a recipe in place for tremendous volatility.
I don't have a crystal ball. No one does. But we can continue to favor the stocks that have remained leaders throughout this crisis as I believe many of them will be leaders into the foreseeable future.
I want to emphasize that, while we're mostly traders at EarningsBeats.com, our portfolio strategy is a 3 month, buy-and-hold strategy. We don't trade. The reasons for this are (1) transparency, (2) simplicity, and (3) consistency. We provide the portfolios for educational purposes, highlighting the importance of relative strength and sticking with leading stocks within leading industry groups. We believe this is a solid, long-term strategy. As our results last week show, it's not perfect. The stock market fluctuates and rotates at all times, so short-term results will vary. But we believe the long-term illustrates the benefits of owning leaders.
One last thing. I wrote over the weekend in ChartWatchers that I'm building cash and that the stock market could be vulnerable in the near-term. You can view this article HERE. I do see short-term storm clouds, which impacts trading strategies. But again, the portfolios are designed for "buy and hold" types of investors. We don't set stops and trade in and out. Members can use these portfolios however they wish, but for our portfolio purposes, to be completely transparent, every stock will be held until the November 19th close, regardless of intra-quarter performance - positive or negative.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."