EB Weekly Portfolio Report - Sunday, September 13, 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, September 14: None
Tuesday, September 15: FDX
Wednesday, September 16: None
Thursday, September 17: None
Friday, September 18: 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:
Considering the relative weakness in NASDAQ stocks last week and also the relative weakness in growth stocks vs. value stocks (IWF:IWD), the above weekly returns are about what I would have expected. It was a solid week for the Income Portfolio on a relative basis, but the other three trailed the benchmark S&P 500.
Weekly Summary
Benchmark S&P 500:
The benchmark S&P 500 struggled last week amid sentiment warning signs, falling 2.51%. To be quite honest, this was a very healthy development for the stock market. When we see the market get stretched and overbought, and especially when these conditions co-exist with extremely bullish sentiment issues, it's fairly normal to see short-term weakness. I expect that weakness will set us up for a nice rally into the start of next quarter's earnings season, but let's see how the sentiment issues shake out by month end.
Model Portfolio:
The Model portfolio fell 4.42%, one of its worst weeks during the pandemic. Here's the updated inception-to-date chart of the portfolio:
Here are how the Model portfolio component stocks performed last week:
The large, growth stocks on the NASDAQ that have carried equity prices higher in 2020 were most definitely out of favor last week as sellers gained complete control of the action in many of the NASDAQ 100 names. I suspect we'll see a significant snap back rally in the very near-term, but there does remain downside risk as profits are being booked in these companies to help fuel current rallies in other areas of the U.S. stock market. The companies in our Model Portfolio are leaders. As such, when the NASDAQ rebounds, I fully expect you'll see nice gains in many of the above stocks.
Aggressive Portfolio:
The Aggressive portfolio declined another 3.65%, adding to an already rough quarter.
Here's the Aggressive portfolio chart since its inception on May 19, 2019:
Here are how the Aggressive portfolio component stocks performed last week:
QDEL bounced along with many medical diagnostic stocks last week, but still has a long way to go to recover this quarter. DOCU, which managed to avoid some of the selling of other software stocks last week, made up for it this week, tumbling more than 8%. The big loser, however, was ACMR. Its big drop was triggered by the threat that one of its customers might get blacklisted by the U.S. Department of Commerce. While a selloff would certainly be understandable, ACMR indicated that its 3 top customers, which do not include the aforementioned company, account for 74% of its revenues. On the surface, it would appear the selloff was overdone. However, many times the stock market takes a "sell first, ask questions later" approach and that helps to explain the severity of the decline. ACMR did rally on Friday and I wouldn't be surprised to see a further bounce this week.
Income Portfolio:
The Income portfolio dropped 0.60%, but that performance was excellent relative to the S&P 500's 2.51% loss. Here's a look at the inception-to-date chart:
Here are how the Income portfolio component stocks performed last week:
AAPL and MSFT have been solid outperformers throughout this pandemic, but they were not in favor last week. AAPL, in particular, is likely seeing some profit taking after a historic advance following its 4 for 1 stock split two weeks ago. Meanwhile, 6 of the 10 Income Portfolio components actually gained ground last week. DHI rode piggy-back style on the strong home construction group ($DJUSHB), which rose 4.74% last week. Only coal stocks ($DJUSCL) performed better than home construction last week.
Strong AD Portfolio:
The Strong AD Portfolio lost 3.18% last week, hurt primarily by the reaction to LULU's quarterly earnings report. Here's a look at the inception-to-date chart:
Here are how the Strong AD portfolio component stocks performed last week:
GNMK's solid week was nice, but it was simply a deserved rebound off of a sharp drop the previous week when Abbott Labs (ABT) announced the quick $5 COVID-19 test. Most diagnostic companies not named Abbott Labs sold off as a result. While LULU suffered a big hit last week, its rising 20 week EMA at 311 offers solid hope for a rebound in the week ahead, barring significant overall market weakness.
Summary
Earnings won't be a factor for the upcoming week as only two notable companies report. One of our Income Portfolio stocks, FedEx Corp (FDX) will report on Tuesday after the market closes and that could have an impact on two of our other delivery services stocks ($DJUSAF), United Parcel Service (UPS) and Atlas Air Worldwide (AAWW). Also, Adobe Systems (ADBE) will report its quarterly results on Tuesday after the bell, so many software stocks, particularly those with a cloud presence, could be impacted. Otherwise, stocks will be left to trade on technical merit, which currently might not be the best situation after the recent selling.
All of this, however, will lead to what I believe should be excellent trading opportunities into our next quarterly earnings season.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."