VIDEO: Digging Into the First Part of Our Quarterly EPS All-Stars Reconstitution

Chris Versace walks through today’s move to begin the quarterly reconstitution process for the Portfolio’s EPS All-Stars basket, which as of the writing is up just over 72% quarter-to-date. That includes a whopper of a gain in Micron (MU) and triple-digit runs in Credo Technology (CRDO) and Bloom Energy (BE). Chris also lays out what you should expect early Wednesday morning to complete the process.

We also quickly touch on two things we’ll be watching Wednesday, including the ISM June Manufacturing PMI data and an appearance by Fed Chair Kevin Warsh.

Transcript

Hey everybody, Christ Versace, June 30th, last day of the quarter. And believe me, there is a lot that we could talk about. From what the market has done, you know, quarter to date, the strength of that return compared to the last several years, the factors behind it. But we’re gonna save all of that for the June Monthly Roundup that’ll be out later this week. Don’t want to spoil anything. When we do share those thoughts with you, we’re also going to be digging into some things that we’ll be watching as we kick off the second half of the year and could be influential as we get ready for what’s ahead. Now, what I do want to spend talking about today is the first part of our EPS All-Stars Reconstitution. This is, as you have come to know by now, a quarterly process.

After we run the model, which focuses on companies with significant history of earnings growth and prospects for continued earnings growth over the next two years, we shake and bake that, and we take the top performers. Sometimes companies get carried over from one quarter to the next, other times they do not. And when that happens, that means that we have to do some culling. And that’s what you saw us do today with the shares of Credo and HBM. Now, both of those, you know, were in for the entire quarter. Credo was actually in for more than just the second quarter, but I’m happy to say that we reported some nice gains in both of those positions. The Credo position returned just shy of 184% during the second quarter, and Hudbay Minerals just over 11%. 

Because we are upsizing the Portfolio’s overall exposure to the EPS All-Stars basket starting tomorrow, we also had to do some trimming to reset the position sizes, notably for Bloom Energy and for Micron. This, I would argue, is a very good problem. Why do I say that? Bloom Energy was up almost 120% during the quarter and Micron up almost 342%. 

Those are some significant gains. And you know, while on the one hand, it is sad to see us have to shrink these positions, the prudent investor in me says, boy, these stocks have run. There probably is more upside. We’re going to have continued exposure. But I do feel very good about locking in some of those simply massive gains for the Portfolio.

Now remember, when we reconstitute the second part of the strategy tomorrow, we will be taking position sizes up to 0.75% of the Portfolio’s assets. What does that mean? Well, it means a few things. One, we’ve already trimmed back Bloom Energy and Micron, so that’s two positions, but the basket, as you know, is eight. So, for the positions of Ciena, El Dorado Gold, Lumentum and Rocket Companies, Ciena, El Dorado, Lumentum, Rocket, four, had to make sure. Those four we will be adding to take their position sizes from where they closed today up to 0.75%. That is six positions overall. That means we have two new positions coming into the basket tomorrow. And we will be sharing not only what those positions are, but the share amounts with you bright and early tomorrow, well before the market opens. 

Reason being is we want to make sure that you have time to assemble the trades so that when we start the Portfolio and the quarter off at 9:30, when the market opens tomorrow, Eastern Standard Time, you will be able to enact those positions and start the quarter off accordingly.

I will be around in the part one trade this afternoon and in the part two trade tomorrow morning answering questions. I already had one question. A person asked, Chris, if we don’t have any Micron shares, should we therefore add them? And even though the Portfolio’s basket is trimming them, my answer was this. If we did not have any Micron shares in the Portfolio, we would be buying them. Because that is what the model says: that Micron shares should be a part of the EPS All-Stars basket for the third quarter. The same goes with Bloom Energy. 

So, folks, if you were sitting on the sidelines waiting to see how the strategy played out, and I have to say, as of right now, it’s playing out pretty well for the quarter, just a hair more than 72% that compares to about 14 and three-quarters of a percent return for the S&P 500. Obviously, we still have a few hours to go, and we’ll finalize those numbers and share them tomorrow. But the strategy has played out extremely well in the second quarter. And remember, the first quarter it outperformed the S&P 500 as well. So, I would suggest that if you haven’t started getting ready and enacting the EPS All-Stars basket. Now is kind of the time.

So, we’ll have much more on this tomorrow. And again, I’ll be around in the part one alert that’s already out today and in the part two alert tomorrow, answering any questions that you might have. And one last thing, I almost forgot. We are gonna keep a close eye on some of the positions that have run you know, really in the last several days. For example, Axon. we talked about why it was up significantly yesterday. It is moving higher today, breaking out past some technical support but also moving into an overbought condition based on the relative strength index.

So, we’re gonna, you know, assess the situation perhaps near term, maybe tomorrow, maybe later this week, we’ll see. It might call for some prudent portfolio management because if you think about it, the shares were hovering around 350, 360 you know, at the start of the quarter and now. Well, we know where they are. So never afraid, as my old friend Bob Lang said, no one ever went broke taking a profit.

And with that, folks, I will leave you there for today. We’ll be back tomorrow to talk about a lot of things that are in motion. Remember we get the ISM Manufacturing PMI tomorrow. Also, Kevin Walsh will be in the hot seat tomorrow. Candidly, don’t expect him to say a lot. If anything, I expect him to try and be a little more cryptic, maybe in the vein of Alan Greenspan. We’ll see if he brings back the purposeful whispery voice and see what he says. 

Anyway, we’ll have a lot more for you this afternoon and tomorrow. Continue to check your emails and we’ll see you soon.

At the time of publication, TheStreet Pro was long BE and MU.