We’re one day away from “DRAFT Day”! Every quarter, we select the 10 equal-weighted stocks that will comprise our 3 portfolios – Model, Aggressive, and Income. My background is in public accounting as I audited companies in the Washington, DC – Baltimore, MD metropolitan area for two decades. While most of my teaching generally encompasses technical analysis and how I use it, I still haven’t let go of my “roots” on the fundamental side. Earnings matter to me. I believe that management teams should develop a business plan that works to their strengths and limits the impact of their weaknesses. And the BEST management teams execute their plan to perfection, beating their own expectations and those of Wall Street.
In order to take advantage of this clear competitive advantage in management teams, we created our flagship ChartList at StockCharts.com, our Strong Earnings ChartList (SECL). I believe that management performance and integrity is so important that I won’t select ANY company for our 3 portfolios, unless it’s on our SECL. Currently, we have 390 companies on this ChartList. Roughly 7-8% of them will be “drafted” by us tomorrow afternoon during our “Top 10 Stock Picks” live virtual event. It’s completely FREE and you’re welcome to join us and witness the process that I go through to assess the current stock market environment and then select the stocks in the best position to benefit from that environment. CLICK HERE for more information and to register.
Let’s look at 3 companies that MIGHT make sense in our portfolios and that will be given considerable consideration:
Walt Disney Co (DIS)
It looks like the triple bottom on the long-term DIS chart near 80 has held and a new uptrend has begun. For the first time since 2020, DIS has made a successful 20-week EMA test and then gone on to break out to new high. We hadn’t seen this since the 20-week EMA was tested during Sep/Oct/Nov 2020. Check this out:
That bottom panel is worrisome for sure. The broadcasting & entertainment index ($DJUSBC) has been absolutely horrific vs. the S&P 500 for 3 years now. Can DIS perform well in such an awful industry environment? Will the industry group begin to reverse, with DIS providing leadership? That’s a difficult call. What we do know, however, is that DIS just posted excellent quarterly results. Revenues came in at $23.55 billion, slightly ahead of consensus estimates of $23.41 billion. Earnings were quite strong, however, at $1.22 per share. Expectations were set at just $.97.
Is DIS worthy of a first-round draft pick? We’ll talk about that tomorrow.
Meta Platforms (META)
Many of our scouts are saying that META could be the #1 overall draft pick. Hailing from the incredibly bullish internet space ($DJUSNS), which has been second only to semiconductors ($DJUSSC) in terms of best relative performance to the S&P 500 over the past year, META has had an MVP type of season, leading its industry peers. Here’s the current chart:
META is one of 8 stocks on our Model Portfolio last quarter that still resides on our SECL. There’s a good chance it gets selected in back-to-back drafts. Over the past 3 months, META gained 41.63%, only beaten by Palo Alto Networks (PANW), which gained 51.22%. Not too surprisingly, our Model Portfolio racked up a quarterly gain of 21.87%, which CRUSHED the S&P 500’s gain of 10.08%.
Sure, it’s trendy to say that META is overbought, along with most every other key technology or communication services name. But those who only look at the last year’s STRAIGHT UP move like to conveniently ignore the fact that META dropped 75% the year before during the cyclical bear market. Market makers were able to scoop up this All-Star at dirt cheap prices for their wealthy institutional clients. Maybe those institutions can give the #1 draft pick acceptance speech, thanking everyone who panicked during that manipulation-driven selloff.
What about META’s fundamentals? Well, last quarter the company produced revenues of $40.11 billion, easily surpassing its $38.99 estimate. And instead of the widely-expected profit of $4.83, META blew the doors off that number, instead coming in at $5.33. What’s not to like here?
Let’s see if META has its name called first on Tuesday! Or how about the other 7 Model Portfolio returning starters? Could they be re-drafted? What a great problem to have!
AZEK Company (AZEK)
It’s easy to talk about META, AMZN, NVDA, etc., but our scout team needs to look deeper and take a stand on potential high-flyers from time to time. Yes, their floor might not be nearly as high as a company like META, but the potential to the upside can be staggering for smaller-cap companies. AZEK isn’t part of the scorching-hot technology (XLK) or communication services (XLC) sectors. Instead, AZEK is a $6.6 billion company in the industrials (XLI) sector and designs, manufactures, and sells building products for residential, commercial, and industrial markets in North America. Technically, it’s been an exceptional performer over the past few months:
Like META, AZEK is a relative leader in a leading industry group, building materials & fixtures ($DJUSBD), which I always love to see. The DJUSBD is the 8th best-performing industry group over the past year. But AZEK is also a smaller company and we know that small caps have struggled relative to their larger cap counterparts. Still, it’s hard to ignore the numbers posted by AZEK. Their revenues were $240 million vs. their expected $234 million. And earnings doubled expectations, $.10 vs. $.05. Results like this can change the future projection of earnings, especially when guidance is raised. AZEK raised its Q2 revenue guidance significantly from $381.6 million to a range from $407-$413 million. And then what happens if AZEK beats estimates again?
Is the potential here solid enough to result in a Top 10 selection?
We have our work cut out for us tomorrow. I’ll be secluded for the next 24 hours in our EarningsBeats.com “War Room”, deciding where the stock market may go over the next 3 months and which areas and stocks are poised to benefit from it. If you’re interested, you can find out more information about this FREE event and REGISTER here.
Tom Bowley 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.
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