Our research, which has been developed over two decades of Wall Street experience, strongly suggests that our Dunks Product can add significant value by supplementing the actively managed part of your portfolio. By highlighting individual stocks with high quality reward risk ratios that over the medium/long-term it is possible to raise the probability of outperforming the overall equity market without taking on excessive amounts of risk.

For those who are less risk-averse, we also present some higher-risk, but often higher-reward opportunities that will be included in the Mid-Range Jumper section of the overall Dunks. Both these stock lists are derived by the models and techniques that we have been producing for professional institutional investors since the 1990s. For the first time ever, I am now making it available to retail investors on FSInsight.com.

Our investment and selection methodologies are grounded in proprietary quantitative analysis and methods that have not only stood the test of time but also have been evolving. Please be aware that, because we are using a quantitative model-based method, we are not doing extensive fundamental and catalyst analysis on the individual names we land on. You should always do additional due diligence before adding a name to your portfolio to ensure it conforms with your individual risk tolerance and investment goals.

Click HERE to read the intro of Brian’s Dunks

Market Commentary

Last week, the S&P 500 traded between 3840-3636, which was just above my longstanding next downside target range of 3600-3500. Some have asked whether we have finally hit THE bottom. In last week’s Whispers, I stated the following:

THE bottom ?— NO evidence.  A tactical bottom? Possibly.

I don’t like being a grumpy, cranky, and snarling bear, but unfortunately my work is not currently supportive of a sustainable long duration investable equity market bottom. There will be a point that will come, but the evidence is not yet there for me. With that being said, the pace of last week’s price drop led one of my most aggressive tactical indicators to reach extreme negative readings, which is a tactical contrarian favorable signal. My other key short-term metrics (HALO and V squared) did not fully confirm so there could be a countertrend trading bounce that would likely be of small magnitude and short duration. For investors, it should be viewed as an opportunity to sell into or raise hedges. If you are an aggressive trader, one can try to play it, but I would advise having one eye on the exit door at all times.

The Fed and inflation have been getting a lot of attention, but there is an even bigger factor in my reticence about this latest rally. One of the most important subtexts that folks might not be picking up from Powell’s latest appearance was that he all but explicitly said that a soft-landing is not going to happen. He did say the economy was on firm footing, but that appeared to be a token comment when taken in context. Of course, he’d like to express some optimism, but he was clear that the Fed is mission focused on price stability. The weight of elevated energy and commodity pricing and tightening financials conditions is certainly beginning to weigh on the domestic economy, which will ultimately spill over into a clear negative earnings revisions cycle. My work shows very definitely that this is almost a certainty.

Negative earnings revisions, which are shown in my work using ASM indicators, are akin to gravity. Yes, the overall equity market can have a tactical oversold bounce from time to time, but a falling ASM indicator keeps the dominant tug of the market to the downside. It’s going to be hard for a broad-based stock rally when earnings revisions are coming down at an accelerating rate unless we get a major unexpected macro catalyst like crude prices falling $30+ in the immediate future.

However, absent such an outcome, my work strongly portends there is more S&P 500 downside ahead. I’ve been discussing what I see as a growing possibility that I may have to introduce an even lower target range than my longstanding 3600-3500 zone.

The current environment remains quite challenging regardless of one’s knowledge and experience, and that also goes for institutional clients that I speak with every day. As a reminder, my Dunks product is designed to outperform the S&P 500, especially when the index is in an uptrend based on my proprietary Earnings Revision Model (ERM) and supportive ASM readings, which is my proprietary earnings revision indicator. Nevertheless, down markets are challenging for any long only positioning.

I am still not happy with the absolute performance of the Dunks list since it was launched, but I continue to hold the view that, based on the downward pressure that the overall equity market has been under, we are holding up OK. As of this morning’s writing, the Midrange Jumpers have turned to black as they have now outperformed the S&P 500 by roughly 1%, which does not include any dividend yield that we are getting from PM and AMT. The Dunks are still lagging by over 5%, but I am encouraged that I have had more winners than losers. More work needs to be done here to get us to outperforming, but I am confident that goal will be reached. Significantly, I do want to reiterate that my model historically performs very well on 6-, 12-, and 18-month time horizons, and my research strongly supports that the Dunks will be validated once we move past this period of elevated volatility and macro challenges.

After being involved with the equity markets professionally now for over 25 years, I must pass along that there is sadly no secret technique that will fully ensure that an investor’s long equity money will always post positive returns in shorter-term time periods. We can mitigate drawdowns when we are bearish by raising cash, proper sector allocations, and skillful stock selection. However, even if these strategies are executed to perfection, it is hard to avoid losses during down markets. With all that being said, my experience on the Street has helped me get my battle scars while evolving and enhancing my investment process.

We will get an opportunity to pivot back to bullishness, but for now one needs patience. My work shows that slow, steady, and keeping with a process adds value and outperforms on longer time horizons. The continuation of market volatility and a challenging macro backdrop makes it even more important to stick to a disciplined methodology.

I continue to advise staying both cautious and alert. Watch your risk exposures and let’s be ready to spring into action. We can all survive the bumpy ride and prosper in the longer term. Hang in there.

Changes this month

Summary

Analysis

Dunks

AMZN3.43%  – Amazon ( PLAY )

ASM Indicator: The key metric for AMZN remains at an extreme negative reading along with sizable read bars, which historically suggests a lot of bad news is priced in and that forward returns are attractive. Hence, I continue to be willing to hold the stock as the reward/risk ration appears well tilted towards reward.

Brian’s Take: After peaking in July 2020 versus the S&P 500, AMZN has seen its relative performance fall nearly 50% over the last two years. However, since AMZN first neared $100 (split adjusted) during mid-May, its stock has been a slight outperformer and appears to be within a bottoming process. My research suggests that investors will be well rewarded by holding AMZN for the next 12-18months.

Commentary: AMZN is the undisputed leader in e-commerce and cloud services through its Amazon Web Services segment. We believe the competitive advantage will be hard for peers to catch up to. The company will likely grow at above-market rates as the importance of cloud and e-commerce continues to increase.

FANG0.32%  – Diamondback Energy ( PLAY )

ASM Indicator: Its key metric remains healthy, but elevated. Like many other Energy names, FANG’s earnings revisions still stand out as favorable, but I am keeping a close eye on the always worrisome issue — can things get much better? At the moment, I am still willing to give the name the benefit of the doubt.

Brian’s Take: The entire Energy sector has been hit tactically hard over the past two weeks, which should not be a total surprise. Energy has been a large outperformer year-to-date and was overdue for some kind of a relative pause/consolidation/pullback. Now that it has occurred, FANG and sector constituents are interesting again as investors must decide is it time to buy the dip or sell the next rally. Based on my research, I am looking to buy the dip until my key indicators change.

Commentary: This is a well-managed Energy name that should be able to outperform markets and peers and has a tailwind of being in an attractively valued sector.

RTX-0.29%  – Raytheon ( PLAY )

ASM Indicator: The upward trending ASM move is still in motion and not yet extreme. Its red bars are about to flip to green, which would be a positive confirming and provide tailwinds for its next outperformance leg.

Brian’s Take: RTX continues to be a strong outperformer and the favorable backdrop remains in place. Thus, I continue to like the outlook for the stock.

Commentary: Raytheon operates as an aircraft manufacturing company as well as leading defense contractor. Thus, RTX has a diversified mix of commercial aerospace and military exposure and has been increasing its global exposure as well.

CCJ0.39%  – Cameco Corporation ( PLAY )

ASM Indicator: It continues to be favorable and grinds higher and CCJ’s bars remain green. The longer-term tailwinds remain in place.

Brian’s Take: My work has been little changed for CCJ since I included it on the Dunk’s list. The stock gets tactically impacted by the tug of war between cyclical fears versus secular positives. I continue to want to own CCJ and am a willing buyer on tactical dips.

Commentary: The energy transition is happening, but what technology will eventually help bring down carbon solutions without sacrificing quality of the grid? Our research and analysis suggest that nuclear energy will become a more essential part of the world’s solution to evolving clean energy needs.

CPB-1.15%  – Campbell Soup ( PLAY )

New Addition

ASM Indicator: The key indicator for this traditionally defensive name is nice rising, which is becoming harder to find in my work. In addition, its bars have been nicely moving from red, to shrinking red, and now to small green confirm the favorable ASM reading for CPB.

Brian’s Take: The stock has not gone very far since it hit $46 in mid-January, but this sideways price action has led to CPB outperforming the S&P 500. Since I remain overall bearish, the stock’s 3% dividend yield also looks quite appealing. Thus, the combination of a favorable ASM indicator, a healthy dividend yield, and historical outperformance during weak overall equity markets makes CPB an attractive stock to be added to the Dunk’s list.

Commentary: The company manufactures and markets food products and has two major segments — Americas Simple Meals & Beverages, which includes its retail/food service business as well as its flagship brands like Campbell’s condensed soups, Swanson stocks and broth, Prego Pasta sauce and V8 juices. The second major segment is Global Biscuits & Snacks, which includes flagship brands like Goldfish crackers and Milano cookies.

Mid-Range Jumpers

LYV1.51%  – Live Nation ( PLAY )

TYPE CHANGED

ASM Indicator: The ASM for LYV is still rising, but its green bars have shrunk a bit, which caused me to lower its attractiveness. The backdrop is still favorable and certainly much better than the average name in the S&P 500, but for process I must downgrade its attractiveness.

Brian’s Take: Relative to other areas within the Communication Services sector, LYV’s indicators look attractive and the longer term outlook remains favorable. Since I am concerned about the economy, the overall market, the tactical outlook for the stock is less clear. For now, I will continue to give LYV the benefit of the doubt, but any additional signs of weakness will likely cause me to replace it.

Commentary: This company’s superior scale and operating expertise allow LYV to benefit from the ongoing normalization and return of live events, including concerts.

PM-1.11%  – Phillip Morris ( PLAY )

ASM Indicator: My comments on PM’s key metric are still relevant — trying to move up from a negative extreme, which is a contrarian bullish signal in my methodology. Its red bars are also beginning to get smaller.

Brian’s Take: PM has done its job nicely since it was added to the Midrange Jumpers, which was to outperform during the weak equity markets I had expected. The firm also has a 5% dividend yield. My work suggests that there is a high likelihood of further relative gains to come for PM and I am sticking with this defensive gem.

Commentary: Phillip-Morris is the third-leading producer of tobacco products. The company has an 11.4% global market share and owns flagship brands such as Marlboro. In addition, PM is also launching an effort into less-harmful, heated tobacco products. This push has been largely unaffected by COVID and is expected to compensate for the declining global sales of cigarettes and tobacco bans.

ISRG0.59%  – Intuitive Surgical ( PLAY )

ASM Indicator: I don’t have any changes from my last couple of update comments for ISRG — its key metric bottomed in January and has slowly been trying to rise. Also moving in the right direction is the company’s red bars, which continue to shrink. This combination is historically a bullish mix for any stock and leads to a high probability of future performance gains.

Brian’s Take: ISRG has been quite frustrating for me as it has been one of my worst performers while its indicator backdrop remains quite favorable. This can happen in my methodology but is certainly not the norm. I also want to reiterate that the company continues to execute well, has strong products, and both its fundamental and earnings revision outlook are quite attractive. I am going to stick with this game changing Health Care name and expect our patience to be well rewarded over time.

Commentary: The Health Care sector is experiencing healthy disruptions and changes, and ISRG is one of the leading innovators in the space. The firm has products that utilize both robotics and augmented reality to positively impact the industry and get improved results for patients.

CME-0.72%  – CME Group ( PLAY )

ASM Indicator: The indicator backdrop for CME continues to portend additional relative performance gains. In addition, its bars continue to be green and supportive.

Brian’s Take: The stock has been a solid outperformer since it was added to the Midrange Jumpers in 12/21. My research shows that its key metrics are still favorable and not extreme, which suggests that further gains are likely.

Commentary: This company is a cutting-edge financial services name that is a leader in the burgeoning area of derivatives. CME’s profitability will likely continue to increase as more investors use the firm’s comprehensive product offerings to manage risk.

AMT-0.70%  – American Tower ( PLAY )

ASM Indicator: Its key indicator has continued to rise since it was added to the Midrange Jumpers in late-April. In addition, the red bars for AMT are also getting smaller, which is a strong confirmation for its favorable ASM reading.

Brian’s Take: The stock has been a nice addition to the list as it has been an outperformer. In addition, AMT has over a 2% yield and traditionally does well during fears of economic slowing. These factors in aggregate make AMT an attractive name for investors.

Commentary: American Tower (AMT-0.70% ) is now the largest REIT in the S&P 500 and specializes in leasing multi-tenant properties for wireless providers. It has a real estate portfolio of over 200,000 communications properties. It is heavily exposed to fast growing 5G in domestic and foreign markets. It has steady dividends and has proven itself to be a quality compounder over time with secure revenue and above-average pricing.

Changes

BKNG0.53% PYPL2.65%  GM0.48%  SBUX0.47%  TSM (HOLD)

I am moving BKNG into the hold bucket and it joins PYPL, GM, SBUX, and TSM, which are holdovers from last month.

All names have been struggling and have not acted in line with what my models have been forecasting. While this continues to be quite frustrating and disappointing to me, their set ups are pointing to gains over 6-12 months. However, for discipline, they remain out of the starting rotation.

The “HOLD” bucket is one where a name is not completely kicked out. Longer-term investors with enough funds to keep holding these names and are still able to buy our replacement picks may be well served to do so.