EB Weekly Portfolio Report - Sunday, February 28, 2021

Tom Bowley - February 28, 2021

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, March 1: ZM

Tuesday, March 2: None

Wednesday, March 3: None

Thursday, March 4: None

Friday, March 5: 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 Friday, February 19th; members may choose to try to time better entries, but EB.com "purchased" as of February 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:

It was a highly volatile week, but I felt our portfolios held up fairly well given the rotation away from growth stocks and into value stocks. I don't expect that trend to continue throughout 2021, but in the short-term it's problematic as many of our portfolio stocks are growth-oriented.

Weekly Summary

Benchmark S&P 500:

The S&P 500 fell 2.45%, while the NASDAQ 100 ($NDX) dropped 4.94%, doubling the loss on the S&P 500. There was rotation into areas left behind by the pandemic. In fact, my Pandemic Index that tracks 10 of the worst performing industry groups during the initial few months of the pandemic broke out to an 11-month relative high vs. the S&P 500:

The bottom panel shows the relative breakout above the June 2020 relative high. In my opinion, this is the stock market saying "the COVID-19 pandemic is over". U.S. equities are now looking ahead to the post-pandemic environment, which will likely include tremendous pent up demand.

Model Portfolio:

The Model Portfolio lost 3.46% to trail 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:

Two of the Model Portfolio's discretionary stocks bucked the selling last week, helping to offset significant weakness in a handful of stocks. Of those that sold off, however, only PTON is trending beneath its declining 20 day EMA. Its AD line remains very strong, though:

PTON is testing a key relative support level, so that's something to watch. It's possible that it trends lower towards the price low in November, though if relative support holds, I doubt we see PTON reach that level again. It's no doubt being challenged technically for now.

Aggressive Portfolio:

The Aggressive Portfolio fell 2.70% to nearly hold up vs. the S&P 500, quite impressive given the market environment. Here's the updated inception-to-date chart of the portfolio:

Here are how the Aggressive portfolio component stocks performed last week:

The individual stocks held up fairly well. GNRC took a tumble, but it's been on fire, so a bit of profit taking is to be expected. ZM reports earnings after the close on Monday.

Income Portfolio:

The Income Portfolio gained 1.25%, handily beating the S&P 500. Here's the updated inception-to-date chart of the portfolio:

Here are how the Income portfolio component stocks performed last week:

8 of 10 component stocks rose last week. Clearly, this portfolio benefited from the inclusion of more stocks outside the technology and consumer discretionary sectors.

Strong AD Portfolio:

The Strong AD Portfolio dropped 6.92%, despite recovering solidly on Friday. Here's the updated inception-to-date chart of the portfolio:

Here are how the Strong AD portfolio component stocks performed last week:

SQ and MGNI both reported strong quarterly results, but couldn't avoid profit taking. FLNT, extremely volatile recently, saw a selloff that took it back to key price support level near 6.00:

Summary

It was down week for our major indices and our portfolios mostly underperformed. Yet quite honestly, I feel it was a big win for the bulls. First, I believe that options expiration had at least a slight hand in last week's selling. If that's the case, look for a bounce-back week. Second, I view the relative breakout in my Pandemic Index incredibly bullish. There's only one reason that the groups comprising this index (eg, airlines, recreational services, gambling, hotel & lodging REITs, etc.) would break out on a relative basis. Wall Street is looking past the virus. That will unleash pent up demand, the likes of which we haven't seen in decades. I'm on record saying that 2021 GDP will be 6% or more. Economic expansion will accelerate in the second half of the year.

While growth stocks took it on the chin last week, we'll soon find out how much options expiration impacted this area of the market. Yes, yields are rising, but that's a VERY GOOD thing. It confirms that money is rotating out of defensive treasuries, further confirming the expectation of excellent second half economic growth.

Model ETF Portfolio

Our Model ETF Portfolio fell 5.43% as the growth portion of our Model ETF portfolio took a big hit last week. You can see the ETFs responsible for our underperformance last week in the table below. I expect we'll see recovery in the week ahead.

Here's the updated inception-to-date chart of the Model ETF Portfolio:

Here are how the Model ETF Portfolio component ETFs performed last week:

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

"Better timing. Better trades."