Trading Places with Tom Bowley

It's Draft Day for EarningsBeats.com; Will This HUGE Winner Remain in Our Portfolio?

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I have a favorite day each quarter. It's the day that I set aside hours to reassess the overall market to determine what I believe will take place over the next three months, focus on the best areas of the market, and ultimately select 10 equal-weighted stocks to line our 4 stock portfolios. During our most recent quarter, which ends on Friday at the close, we've had several big winners, but our biggest has been Cloudflare, Inc. (NET), a software stock ($DJUSSW). It's epitomized what we look for at EarningsBeats.com - a leading stock in a leading industry group. Here's what NET looked like on August 19th, the day it was "drafted" by EarningsBeats.com:

The selection of NET at the time raised questions. Wasn't it too overbought? After all, it had doubled in just the past 3 months. Isn't there a negative divergence? I'd say yes to both. But these portfolios are designed with the "buy and holder" in mind. These are NOT trading portfolios. Members that didn't have time to trade on a regular basis asked a few years ago how they could take advantage of our research, guidance, and education without sitting in front of a computer most of the day. Many of these members worked throughout the day and wanted their money to work for them, but they had limitations. Our portfolios were born. We line our 4 portfolios with 10 equal-weighted, leading stocks and hold them for three months. Then it's rinse and repeat. We don't use stops, we don't care about overbought, negative divergences, etc. We care about strength. If Wall Street is loading up, why wouldn't we want to do the same thing. I would expect volatility and there could definitely be better buying opportunities than the day that we add these stocks to our portfolios, but when did "timing" become part of the "buy and hold" strategy. If we like certain stocks, we add them to our portfolios.

So let's get back to NET. That negative divergence did eventually play out and NET sold off later, before rallying back strongly. A trader could have waited and timed entry better, but those that don't sit in front of their computers don't try to time entries, right? That's the idea with our portfolios. Despite the short-term volatility, NET became the best performer out of our 40 portfolio stocks, gaining nearly 80% from August 19th through Wednesday's close:

Wall Street gave us the signal and we added NET to our Strong AD Portfolio, because of its extremely strong AD line. That portfolio has outperformed the S&P 500 by 8 percentage points this quarter, in large part due to NET's relative strength. Our Aggressive Portfolio has been even better, beating the S&P 500 by an incredible 17 percentage points this quarter. It's been led by HUGE advances in Macy's (M), NVIDIA (NVDA), Synaptics (SYNA), and DataDog (DDOG).

I'd like to invite you to join me later this evening at 7:30pm ET for "DRAFT DAY". I'll be unveiling the 40 stocks that we'll include in our 4 portfolios, in addition to an in-depth discussion of the current market environment and our strategies in putting these portfolios together. You can attend tonight's event by simply becoming a 30-day FREE trial member. CLICK HERE for more information and to get your membership started. We're also running our Fall Special through November 27th. So this is a great time to join. You'll experience everything we have to offer and, if you decide to extend, you'll benefit under our Fall Special which provides up to a FREE year of our service.

I hope you can join us tonight!

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
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