EB Weekly Portfolio Report - Sunday, December 27, 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, December 28: None
Tuesday, December 29: None
Wednesday, December 30: None
Thursday, December 31: None
Friday, January 1: 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 Thursday, November 19th; members may choose to try to time better entries, but EB.com "purchased" as of November 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 1.0%
- 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:
I'm going to include our Pandemic Index as part of our weekly analysis as we move forward. I believe it's a useful and practical way to review, on a weekly basis, how the worst performing groups during the midst of the pandemic (March through May) are performing relative to the benchmark S&P 500 and our own portfolios. If we begin to see consistently strong weekly performance of pandemic groups, it could impact our portfolio decisions in the future.
Last week, our Model Portfolio took a well-deserved breather, mostly due to profit taking in Tesla (TSLA) after that automaker was added to the S&P 500. A temporary bout of profit taking is to be expected, especially given the incredible strength and resilience the stock has shown throughout 2020.
Weekly Summary
Benchmark S&P 500:
The S&P 500 was flat last week and has been relatively flat throughout much of December. I believe the accumulation/distribution line ("AD line") on the SPY (ETF that tracks the S&P 500) is very telling, however. The AD line pulled back considerably while we were consolidating throughout September and October. But that indicator is now rising steadily as price action meanders sideways. As traders grow somewhat frustrated by the lack of further upside, institutions are accumulating, in my opinion:
The blue-dotted vertical line marks the date of the first positive vaccine news from Pfizer (PFE). That initial day saw a gap up and selling, which took the AD line a bit lower. Since then, however, I see nothing but accumulation.
Model Portfolio:
The Model Portfolio fell 1.82% in a rare week of underperformance vs. 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:
FDX continues to struggle after a solid quarterly earnings report. 254.70 is the key price support level, in my view. Further consolidation is certainly possible, although there's no guarantee we'll see FDX drop that far. ZM is a different story and appears to be losing its luster. I'm remaining VERY bullish on ZM, however. There's a very wide consolidation range that's taking place. I believe once all the institutional accumulation takes place, ZM will rally hard. Here's the current chart and the key areas of support and resistance:
The AD line appears to be fairly strong, despite the relative weakness in price action. As ZM moves closer and closer to the two key price/gap support levels, the better reward to risk view, in my opinion. I want you to look at the PTON chart that's featured below in the Strong AD Portfolio section. PTON looked very challenged technically as it consolidated. In November, when PTON was selected as part of the Strong AD Portfolio, I pointed to the AD line as a sign that institutions were accumulating while individual traders were being spooked out of the stock. ZM was one of the best performing stocks of 2020 and I believe it will begin to move higher in 2021 as it turns towards its next quarterly earnings report. Time will tell if I'm right or not.
Aggressive Portfolio:
The Aggressive Portfolio gained 3.27%, a very solid week of outperformance. Here's the updated inception-to-date chart of the portfolio:
Here are how the Aggressive portfolio component stocks performed last week:
SPWR is riding the renewable energy ($DWCREE) wave, while also benefiting from a very high short interest. Short sellers are being squeezed in a major way as SPWR ranks #7 on our Short Squeeze ChartList in terms of short % of float (50.84%). Don't be shocked to see this stunning price rise continue into 2021.
Income Portfolio:
The Income Portfolio climbed 0.59%, and it remains easily the least volatile of our 4 portfolios, but also the least profitable. Here's the updated inception-to-date chart of the portfolio:
Here are how the Income portfolio component stocks performed last week:
DLB broke to yet another all-time high last week as its AD line pushes higher right along with it:
I can't draw a better looking chart. Everything moving up from left to right. That's your confirmation that you own a leading stock in a leading industry group.
Strong AD Portfolio:
The Strong AD Portfolio soared 3.67%, and it's now tripling the benchmark S&P 500 over 7 months - crazy! Here's the updated inception-to-date chart of the portfolio:
Here are how the Strong AD portfolio component stocks performed last week:
Let's take a look at PTON, which absolutely soared last week another 19% higher:
PTON sold off hard after earnings in November, despite easily surpassing Wall Street estimates as to both revenues and EPS. Those who bought at the top near 140 were not feeling particularly good about their investment 3-4 weeks later at 95. It's hard to maintain a bullish mindset when a stock loses more than 30% in less than a month. Buyers turn into sellers and market makers accumulate shares for their best customers - institutional clients. That's why we take the approach we do, which is watching to see what institutions are doing.
Summary
As 2020 draws to a close, it's been a very difficult year for sure, almost no matter how you look at it. The health crisis has been very real and has impacted people all over the world. While everyone has an opinion as to how the media has handled it and exactly how bad things really have been, the number of hospitalizations and deaths relating to COVID-19 and the extreme volatility in the financial markets as a result have had very real impacts.
We've done our best to guide our members throughout this past year and will continue to do so in 2021. We won't always be right, but hopefully we can provide our thoughts with supporting arguments to help you make more informed financial decisions. That's our goal as we thankfully enter a brand new year.
HAPPY NEW YEAR!
Model ETF Portfolio
Beginning next week, we will begin providing a monthly ETF report and will no longer feature the Model ETF Portfolio here in the EB Weekly Portfolio Report.
The following is an inception-to-date chart of this portfolio with a comparative chart of the S&P 500 in the panel below:
Here are how our Model ETF Portfolio components performed last week:
Our Model ETF Portfolio continues to benefit from an unbelievably strong renewable energy area. This ETF only represents 5% of our portfolio because of its tendency to be extremely volatile, but even 5% has made a big difference. PBW has gained 54.16% in a little more than two months. But the bigger difference-maker has been IBUY. Its return since October 19th is lower than PBW at 21.17%, but is well above the S&P 500's return of 8.06%. IBUY is the most heavily-weighted ETF in our portfolio at 20%.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better timing. Better trades."