EB Weekly Portfolio Report - Monday, February 21, 2022
Portfolios Announced Later Today
We will be announcing the 10 equal-weighted stocks to comprise each of the our following 5 portfolios at 4:30pm ET today:
- Model
- Aggressive
- Income
- Strong AD
- Earnings Reaction
The room will open at 4:00pm ET and you can access it using the link below:
https://earningsbeats.zoom.us/j/83865144832
Hope to see you there!
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, February 21: None
Tuesday, February 22: None
Wednesday, February 23: None
Thursday, February 24: None
Friday, February 25: None
We are not showing any of our portfolio stocks reporting earnings this week, because Friday closed out last quarter's portfolios and we haven't announced this quarter's stocks just yet.
PLEASE NOTE: Any company above designated with "(e)" means that it's included in our Earnings Reaction Portfolio, which is a portfolio that we do not officially track at EarningsBeats.com. Still, we wanted to make sure you were aware of the upcoming earnings dates for those stocks as well. The above companies were provided using earnings dates provided by StockCharts.com. My research is limited to what StockCharts.com provides and I also can make a mistake from time to time, so please double check for earnings dates for all companies that you own from a reputable source like Zacks.com. 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 big news from last week was that sellers returned, despite what appeared to be incentive for prices to rise to combat a TON of net in-the-money put premium. Not only did prices retreat back close to key neckline support levels in bearish head & shoulders topping patterns, but the composition of the selling was somewhat bearish as well. Technology (XLK), overall, was middle of the pack in terms of weekly performance, but one key area - software ($DJUSSW, -4.14%) - resumed its selling and it's a poster child of growth stocks:
There's a lot I could write about this chart. But let me just say that the incredible drop in interest rates helped to spur an absolute and relative climb in software stocks that was completely unsustainable. Keep perspective in mind. If you connect the highs (solid blue line), you'll a beautiful trend higher. BUT.....software ran from 1300 to roughly 6300 (almost a 400% gain!!!) in less than 5 years. We cannot expect ANY area of the market to sustain that pace. That's why I've connected the recent lows from the 2018 Q4 trade war and the 2020 Q1 pandemic (blue-dotted line) to perhaps look for a bottom in software stocks. Perhaps 4000 would do the trick?
The red-shaded area highlights the relative struggles that software has had since the 10-year treasury yield ($TNX) bottomed and began rising. Software is no longer the leader that it was. I don't believe the interest rate rise that we've seen will continue, so I do believe leadership from software will be back. But in the meantime, we could see further pain so long as the Fed remains hawkish and is hell bent on raising rates to squash inflation.
Model Portfolio:
The Model Portfolio fell 0.33% last week, outperforming 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:
Aggressive Portfolio:
The Aggressive Portfolio slid 0.80% last week, but did manage to outperform 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:
Income Portfolio:
The Income Portfolio fell 1.60%, essentially tracking the S&P 500 last week. Here's the updated inception-to-date chart of the portfolio:
Here are how the Income portfolio component stocks performed last week:
Strong AD Portfolio:
The Strong AD Portfolio dropped 2.35%, 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:
Earnings Reaction Portfolio:
The Earnings Reaction Portfolio fell 1.78%, 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
The latest portfolio quarter has come to an end - thankfully. It was a difficult quarter with surging inflation and higher interest rates dominating. That, in turn, had a very negative impact on growth stocks. Below is a chart of the mid cap growth area ($DJUSGM):
I've circled the two really bad quarters for growth stocks. The first was the February to May period in 2021, while the second was our latest quarter that began in mid-November 2021. While they both were bad, the latter was worse for one important reason. The former quarter saw surging inflation, the same as the latter. However, I believe the real threat of higher interest rates is the primary difference and what's crushing growth stocks now - on both an absolute and relative basis. During the February to May 2021 period, relative strength took a hit, but growth stocks were still mostly moving higher on an absolute basis.
Model ETF Portfolio
Our Model ETF Portfolio lost 0.51% last week, outperforming the 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."