EB Weekly Portfolio Report - Sunday, July 17, 2022

Tom Bowley - July 17, 2022

Notes

We made one more change to the Aggressive Portfolio, swapping out Brigham Minerals (MNRL), a mining company, at Thursday's closing price of 23.28 and buying Williams Sonoma (WSM), a specialty retailer, at Thursday's close of 131.90. This strategy was discussed in last week's EB Weekly Portfolio Report. All actual buy/sell decisions are yours, however. We use these portfolios to further our educational platform, NOT to provide investment advice. We are not Registered Investment Advisors (RIAs) and are not licensed to provide financial advice, so please consult with your investment adviser before buying or selling any securities.

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, July 18: IBM

Tuesday, July 19: None

Wednesday, July 20: ELV

Thursday, July 21: WRB

Friday, July 22: None

PLEASE NOTE: 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 typically 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, May 19th (but we held a "re-draft" as of the Tuesday, June 21st close; members may choose to try to time better entries, but EB.com originally "purchased" as of May 19th's closing prices, then as of June 21st closing prices for the re-draft
Primary objective is to outperform the benchmark S&P 500 over time; quarter-to-quarter performance can be extremely volatile, especially if significant rotation takes place intra-quarter

Here are several considerations for EB members:

The Income Portfolio should have the least amount of volatility as it will typically be comprised of quality large cap stocks with solid dividends
The Model, Aggressive, Strong AD, and Earnings Reactions Portfolios should be viewed similar to aggressive growth funds; they will typically have a lot of volatility
The Strong AD portfolio will be selected from a combination of rising accumulation/distribution lines and SCTRs above 70 at the time of selection. The Earnings Reactions portfolio is based on strong accumulation the day after its quarterly earnings are released and solid relative strength (vs. its peers). These are the only two portfolios that do NOT require revenue and EPS beats in their most recent quarterly earnings reports
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 four; 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 and the November 2021 to February 2022 periods 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
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:

U.S. equities fell fractionally last week, as consumer staples (XLP) was the only sector to finish in positive territory. Technology (XLK, -0.37%) did perform well on a relative basis, however, and I see that as a positive signal as we move into earnings season. Last week was interesting on a couple fronts. First, we had two inflation reports - the June CPI and June PPI - and both were hotter than expected. Despite that, the 10-year treasury yield ($TNX) fell 17 basis points from 3.10% to 2.93%. That is NOT what I would have expected after seeing inflation rise yet again more than anticipated. And I always look to the REACTION to news rather than the news itself. Wall Street is no longer interested in the inflation story, which means we shouldn't be either. If the TNX breaks out above 3.50%, then we'll talk about the inflation story. Until then, I believe recession moves to the forefront and the Fed turns dovish sooner rather than later. I wouldn't be surprised by another Fed hike of 75 basis points, maybe even a 100-basis point hike, later this month, but I believe it'll be our last one.

Second, we started Q2 earnings season as key central banks reported mostly disappointing results. JP Morgan (JPM) came up well short of EPS estimates and lost more than 3% on Thursday. But after a few others like Citigroup (C) and Wells Fargo (WFC) reported results Friday morning, the entire banking group surged to close out the week. Even JPM moved back above its Wednesday close - just before quarterly results were announced Thursday morning.

Model Portfolio:

The Model Portfolio slumped 3.99% last week, 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:

Aggressive Portfolio:

The Aggressive Portfolio lost 0.40% last week, but did 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 0.88% last week, slightly outperforming 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:

Strong AD Portfolio:

The Strong AD Portfolio fell 1.26% last week, 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 dropped 3.39% last week, 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:

The Week Ahead

Earnings season will pick up steam this week, while economic reports will slow. Outside of a few housing reports and initial jobless claims, most eyes will be on not only a few key earnings reports, but also the Wall Street reactions to those earnings reports. I've seen little in the way of revenue or EPS warnings, so I suspect we'll see primarily "meets" and "beats" when it comes to actual results vs. consensus estimates.

International Business Machines (IBM) will highlight key earnings reports on Monday that will also feature a few key financial firms like Bank of America (BAC), Charles Schwab (SCHW), and Goldman Sachs (GS). Netflix (NFLX) will report quarterly results on Tuesday, while Tesla (TSLA) headlines earnings from Wednesday. The Twitter (TWTR) report on Friday morning should be interesting as well. Make sure to bring some popcorn.

Historically, this week is the second worst week of the year on the S&P 500, dating back to 1950. Only the October 21st-27th period has been worse. That doesn't mean we'll go lower as this upcoming week has finished higher many times. It simply tells us to be a bit more cautious. I certainly will not be shorting anything this week, but I also will likely avoid the use of leveraged ETFs. I'll personally remain long a few individual stocks - primarily from our portfolios.

Model ETF Portfolio

Our Model ETF Portfolio lost 0.82% last week, but slightly outperformed 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."