EB Weekly Portfolio Report - Sunday, December 19, 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, December 20: None
Tuesday, December 21: None
Wednesday, December 22: None
Thursday, December 23: None
Friday, December 24: None - Market closed in observance of Christmas Day
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 his/her 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, 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 70 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.
- Large drawdowns in the February through May 2021 period were due to the rapid rotation from growth stocks to value stocks; each quarter, our portfolios are based on themes and there is never a guarantee that our analysis and beliefs will be proven correct
- You should consider owning or trading 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:
Weekly Summary
Benchmark S&P 500:
The S&P 500 traded as high as 4731.99 last week, but was unable to set another all-time closing high. While the S&P 500 clearly remains in an uptrend and, on the surface, has little to worry about technically, the rotation tells us a completely different story. Last week was all about defense. That's where the money gravitated. The iShares 20+ Year Treasury Bond ETF (TLT) closed near its high for the week, rising 1.44% in the process. That sent treasury yields lower, with the 10-year treasury yield ($TNX) dropping nearly 9 basis points on the week to 1.40%. The Federal Reserve announced that it was expecting to hike rates 3 times in 2022, but the bond market did not believe a word of it. I understand that all the talk right now centers around inflation and the need to hike rates, but I trust the bond market's reaction, which indicates it's simply not going to happen. This nearly exact scenario played out in Q4 2018 during the trade war with China. Fed Chair Jerome Powell infamously declared that two rate hikes were coming in 2019. In July 2019, the Fed lowered rates. I believe hiking rates in 2022 will be a mistake and the Fed will quickly reverse course. If I'm correct, expect a MASSIVE rally in growth stocks once this realization is priced into equities. In the meantime, however, rotation is a problem that is impacting the performance of our portfolios.
Model Portfolio:
The Model Portfolio tumbled 6.52%, underperforming 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:
ABNB had a very rough week, but surprisingly, its AD line actually broke out to a new high. That tells me the intraday selling taking place is being met with accumulation by professionals. In the end, that should work out well for ABNB, but in the near-term the growth stock selling is impacting ABNB in a big way:
Aggressive Portfolio:
The Aggressive Portfolio lost 5.12%, underperforming the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Aggressive portfolio component stocks performed last week:
CROX is rapidly approaching a major support level at 125:
Income Portfolio:
The Income Portfolio fell back 3.27% last week, underperforming 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:
PFE was one of our few bright spots last week, breaking out to a fresh all-time high. It should have solid support on any test of its breakout level, or at its rising 20-day EMA:
Strong AD Portfolio:
The Strong AD Portfolio dropped 4.18%, underperforming the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Strong AD portfolio component stocks performed last week:
PRFT is another stock that's been beaten up, but looks like it's being accumulated. Check out PRFT's AD line:
The AD line hasn't set a new high, but it's not really pulling back either. It's a volatile stock, but buyers do remain.
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio lost 5.08%, underperforming the S&P 500. Here's the updated inception-to-date chart of the portfolio:
Here are how the Earnings Reaction portfolio component stocks performed last week:
Summary
I just realized that my chart last week showing the relative performance of Cathie Woods' ARKK fund, the Innovator IBD 50 Fund (FFTY), and our Model Portfolio didn't all print. So I am reprinting that chart this week. I'm also adding the relative strength of the Dow Jones U.S. Small-Cap Growth Index ($DJUSGS:$SPX) as well. The relative strength of the DJUSGS is a theme that will have a major impact on our portfolio performance. Check this chart out:
I noticed that, for whatever reason, I was unable to show the Model Portfolio, so I am including an image of this chart so that you can compare:
The top panel of this image is the relative performance of the FFTY, followed by our Model Portfolio's relative strength.
Our goal is to outperform the S&P 500, but it's been very difficult to do so in 2021 because of the underperformance of growth stocks. I believe this will change in 2022, but keep an eye on the DJUSGS (and also the DJUSGM - mid cap growth). We'll likely need these two growth stock indices to perform well in order to resume our prior outperformance.
Model ETF Portfolio
Our Model ETF Portfolio dropped 3.36%, underperforming the benchmark S&P 500.
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."