EB Weekly Portfolio Report - Sunday, October 25, 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, October 26: None
Tuesday, October 27: MSFT, AMD, CHRW
Wednesday, October 28: UPS, EBAY, PINS, ETSY, FSLY, GNMK
Thursday, October 29: AAPL, AMZN, FB, SHOP, QDEL
Friday, October 30: 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 was a rougher week than usual for our portfolios, but I believe much of it had to do with growth stocks being ignored. It's easiest to see this on an IWF:IWD relative chart:
The blue-dotted vertical line shows the start of the last week. The downtrend in this ratio is quite evident and suggests that many of the growth-oriented stocks in our portfolios were simply out of favor.
Weekly Summary
Benchmark S&P 500:
Overall, I'm pleased with how U.S. equities held up last week (S&P 500 lost just 0.53%) as the worst historical week of the year arrived. We still have two more calendar days - October 26th and 27th - to endure before the historical tides shift to "very bullish". The current weak historical period affected a number of key industry groups for us, however, as the following industry groups were in the bottom 20% of relative performance:
Home construction ($DJUSHB); Specialty retail ($DJUSRS); Computer hardware ($DJUSCR); Semiconductors ($DJUSSC); Recreational products ($DJUSRP); Home improvements ($DJUSHI).
These all had a negative impact on our portfolios, but I expect that we'll see growth stocks resume a leadership role as we move toward the final two months of 2020.
Model Portfolio:
The Model portfolio fell by 1.69% as it lost some ground to the benchmark 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:
PINS had a huge week in sympathy with the HUGE earnings report from SNAP, also in the internet space ($DJUSNS). The strength in PINS helped to offset weakness across-the-board in our Model Portfolio.
Aggressive Portfolio:
The Aggressive portfolio tumbled by 4.56%, significantly underperforming the 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:
It was a whitewash last week as every Aggressive Portfolio component stock fell - and all more than the S&P 500. ACMR fell 10% to lead the selling as it remains in a downtrend. After seeing a reaction high to fill its gap, it is now floundering in the trading range shown below:
It's a very wide trading range from 59-82 and the stock currently resides in the middle of it. From a bullish perspective, I'd like to see ACMR reclaim its 20 day EMA. Until then, more downside is likely.
Income Portfolio:
The Income portfolio dropped 2.00% last week, suffering a bit of relative underperformance. Here's a look at the inception-to-date chart:
Here are how the Income portfolio component stocks performed last week:
9 of 10 components lost ground last week, but most were quite manageable. The biggest loser, TSCO, came after the company beat revenue & EPS estimates AND raised guidance. Wall Street can definitely be cruel and that was a cruel response to what appeared to be a solid report. Here's a look at TSCO's current chart:
There are 2 keys to this chart, in my opinion. The first is whether TSCO can hold onto relative support vs. its specialty retail peers. That was the 2nd worst performing industry group last week. So not only did TSCO perform poorly vs. its peers, but the entire group was sold off. Second, I see very clear price support in the 136-137 range that's been tested multiple times. I want to see that hold.
Strong AD Portfolio:
The Strong AD Portfolio had a rough week, falling 4.21%, though it's performance was not nearly as volatile as last week's. Here's a look at the inception-to-date chart:
Here are how the Strong AD portfolio component stocks performed last week:
PTON was down nearly 7%, but that wasn't surprising at all given the options predicament that I discussed in last week's Weekly Portfolio Report. FSLY's drop also wasn't a huge surprise as there was key support illustrated last week just below the 74 level. The bigger surprise was W, which lost more than 10%:
I'll be watching price support, along with those two relative support levels - both vs. W's industry peers and vs. the benchmark S&P 500.
Summary
It will be very difficult for our portfolios to escape the volatility associated with quarterly earnings reports. 14 of our 39 portfolio stocks (AAPL is in 2 portfolios, that's why there aren't 40 stocks) will report earnings from Tuesday through Thursday. I would expect the overwhelming majority of these companies to post excellent results, but that doesn't always translate into bullish Wall Street reactions. Still, I would expect that the "net" of these 14 earnings reports would favor a rise in our portfolios, especially as we move into the most bullish historical period (October 27th close through January 18th close) of the year.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."