1.24.15: SP 500 Weekly Earnings Update: Core SP 500 Earnings Growth on Track for High-Single-Digits

January 24, 2015 at 4:21 pm | Posted in AT&T (T), bond proxy, Energy sector, Financial sector, Financials, Technology, VZ, Weekly Earnings Update | Leave a comment

At breakfast this morning, while perusing John Butter’s weekly Factset missive on Sp 500 earnings, John noted that the expected q4 ’14 earnings growth rate for the key benchmark is now nearing the post-2009 low that we saw in q3 ’12 of flat to -0.1% year-over-year growth.

Per Thomson Reuters This Week in Earnings, as of Friday, January 23rd, 2015, q4 ’14 earnings were expected to increase 3.5%, which if you have been tracking our prior blog updates from earlier this month where I noted that Energy is likely costing the SP 500 3% – 4% in quarterly earnings growth, Ex-Energy, q4 ’14 Sp 500 earnings growth is likely 6% – 6.5%.

And therein lies the issue: normally by this point in the quarter, the SP 500 earnings growth starts to tick higher, after the undue pessimism that seems to grip analysts the last month of each quarter and then the first few weeks of each quarter, dissipates and the cold light of actual earnings reports shows that the world isn’t falling completely apart.

There is no question though, with the Financial sector negative revisions (many non-operating and depending on how litigation expenses are treated) the 4th quarter and 2015 earnings outlook has become murkier.

That being said, with the number of large-cap Technology and Industrial companies poised to report this week, I do think q4 ’14 earnings growth will be closer to “high-single-digits” than low-single-digits.

By the end of this coming week, about half of the SP 500 will have reported q4 ’14 earnings.

For 2015, the Energy sector earnings (per Thomson Reuters), is a drag on the current SP 500’s +5.7% expected growth rate by -40%. Assuming Energy is close to the 10% earnings weight / market cap of the SP 500, that means Energy is a 4% drag on expected SP 500 earnings growth, as it stands right now. Does that number get better or worse from here ? Ex-Energy then, 2015 expected earnings growth, is still close to 10% at +9.7%, at this point in time.

However, we are still quite early in 2015, and that expected earnings growth number will likely come down as we progress through the year.

So what’s the point ? The earnings picture is more clouded and murky than normal, given Energy’s influence. We hear from a number of commodity / Basic Materials companies this week which has been a tougher sector than Energy.

———————–

The forward 4-quarter earnings estimate this week, fell to $123.49 from $124.91, which is a sharp drop of $1.42, which combined with last week’s sequential drop of $1.44, means that the forward estimate has declined by $1.86 over just the last two weeks.

The p.e ratio on the forward estimate is 16.6(x)

The PEG ratio is now 4.36%

The earnings yield on the SP 500 is 6.02% versus last week’s 6.19%

The y/y growth rate of the forward 4-quarter estimate as of Friday, 1/23/15 was 3.81%, also down sharply over the last two weeks.

Since January 1, the sectors which have shown upwardly-revised earnings expectations for the 4th quarter of 2014 are:

  • Consumer Staples to+0.2%, from flat growth expected on Jan 1 ’15
  • Health Care to +18% expected growth from +17.6% growth expected in Jan 1 ’15
  • Industrials to +11% growth from 9.9% on January 1 ’15
  • Basic Materials to -0.6% from -2% as of January 1 ’15
  • Technology to +10.8% from +8.9% as of January 1 ’15

This is the more normal pattern we expect to see at this point in the year.

For full-year 2015 only Telecom has seen better expected earnings growth for the full-year after this week, than on January 1 ’15 (to +5.7%, from +4.9%) which I consider somewhat important since Verizon reported this past week, and the conventional wisdom is that there is a price war now occurring in the cellular business. Both Verizon (VZ) and AT&T were slightly positive on the week.

AT&T’s weekly chart is poised at a very critical level. A break below $31.75 – $31.90 on this week’s earnings report and the stock could be done. That being said, the 5.5% dividend yield on T is very inviting, and we’ve actually used the stock as a bond proxy within client accounts. We exited that trade this week, and await T’s earnings report this week.

Our largest sector overweight’s for clients remain Technology and Financials, the leaders from the 1980’s and 1990’s bull market, simply because relative to their expected growth rates, in my opinion Tech and Financials offer the best value, and they (in my opinion) remain steeped in the stigma of the tech bear market in the early 2000’s and the 2008 Financial recession.

Thanks for reading. More to come this weekend.

Trinity Asset Management, Inc, by:

Brian Gilmartin, CFA

Portfolio manager

 

 

1.19.15: A look at 2015’s Full-Year Growth Estimates by Sector

January 19, 2015 at 6:26 pm | Posted in Energy sector, Financial sector, Financials, Sector Earnings Growth Estimates, SP 500 forecast(s) | Leave a comment

Here is the trend in the SP 500’s expected, full-year, 2015 sector earnings growth over three time-frames:

Column 1 is as of Friday, January 16th, 2015

Column 2 is as of January 1, 2015

Column 3 is as of October 1, 2014:

—————————————–

Consumer Disc: +16,6%, +16.9%, +18%

Consumer Spls: +6%, +6.6%, +9%

Energy: -34.9%, -23.3%, +6.9%

Financials: +17.8%, 17.8%, +16.7% 

Health Care: +10.3%, +10.5%, +11.6%

Industrials: +9.5%, +9.7% +11.5%

Materials: +12.7%, +14.7%, +19.1%

Technology: +10.9%, +11.3%, +12.5%

Telco: +5.3%, +4.9%, +6.5%

Utilities: +2.3%, +2.5%, +2.8%

SP 500: +6.6%, +8.1%, +12.4%

Conclusion / Summary: Financials remain my top sector pick for 2015, as even though all of the Big 3 banks saw their stocks hit this week on earnings reports, the expected growth for the sector for full-year 2015 ha snot only remain unchanged since Jan 1, but expected sector earnings growth for 2015 has risen slightly, the only sector of the 10 to do since October 1, 2014. Our top holdings remain JPM, BAC, SCHW, CME within the financial sector. Berkshire Hathaway remains the top weighting in the XLF, the SPDR Financial ETF. We have never been big insurance company investors, but the XLF will give you Berkshire exposure, if you want it.

Financials are a pretty diverse group, as you can see from this spreadsheet (detail courtesy of Thomson), which shows the earnings distribution within the sector: FC – Financials.

Compared to Energy which we looked at yesterday here, the Financials top 5 weights sum to just 6.6%.

We’ll flush this out further as q1 ’15 moves along.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

1.18.15: An Update on Energy Sector Revisions

January 18, 2015 at 8:55 pm | Posted in Crude oil / Energy, Energy sector, Oil Services Co's, Sector Earnings Growth Estimates, SLB, XOM | Leave a comment

The change in expected earnings growth for the Energy sector has been brutal.

FCEnergyRtofChange

Readers can quickly see how the q4 ’15 compare gets much easier given the drop in crude didn’t start until Sept ’14.

For the full year 2015, as of Friday, January 16th, 2015, Energy sector earnings growth is expected to decline 35%, thus if we assume Energy is roughly 10% of the SP 500 (either earnings weight or market cap, take your pick), we can thus guesstimate that the drag on the SP 500 full year estimated earnings growth by the Energy sector is roughly 3.5%.

Here is how the individual names rank by earnings weight in the Energy sector (per Thomson Reuters):

  • Exxon Mobil (XOM) = 25%
  • Chevron (CVX) = 17%
  • Schlumberger (SLB) = 7%
  • Conoco Phillips (COP) = 5.49%
  • Occidental (OXY) = 4.5%

The point is the top 5 names account for over half the sector’s earnings weight of the roughly 21 – 22 names in the Sp 500 Energy sector. Of that Exxon and Chevron are over 40%.

If readers dont want to try and pick the bottom for the Energy sector, (and I suggest you don’t), you might want to stick with these names in terms of a longer-term buy-and-hold strategy.

We have no Energy positions as of yet for clients, but the action in Schlumberger (SLB) on Friday was promising. The stock regained its uptrend line off the ’09 market low, after Thursday night’s earnings release, and on heavier volume too.

As of Friday, January 16th, 2015, the full-year 2015 expected earnings growth for the SP 500 was forecast at +6.6%.

“Ex-Energy” expect 10% for 2015 SP 500 earnings growth (for now).

Tomorrow, I’ll look at the Financial sector.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

1.17.15: SP 500 Weekly Earnings Update: “Ex-Energy”, 4th Quarter, 2014 Earnings Expected to Grow +6.7%

January 17, 2015 at 4:10 pm | Posted in Energy sector, Financial sector, Financials, Fwd 4-qtr growth rate (SP 500), JPM, S&P 500, Sector Earnings Growth Estimates, Weekly Earnings Update | Leave a comment

We will get to the heart of the matter of the blog post today, and note that, despite the sturm and drang around earnings this past week, Greg Harrison of Thomson Reuters notes in the weekly “This Week in Earnings” that “If we look outside the Energy sector the picture becomes much brighter. Earnings in the other nine sectors of the SP 500 are expected to grow 6.7%, which is very close to the overall growth estimate of the estimate for q3 ’14 at the equivalent point in last quarter’s earnings season.”

That is exactly what I said last week on this blog right here, and I even took readers through the math.

In q3 ’14, the SP 500 grew earnings over 10%, granted with an easy compare on JP Morgan’s quarter, since JPM was lapping the q3 ’13 London Whale charge of $1.25 or so.

The point is, q3 ’14 earnings grew roughly 7.5% – 9% on on operating basis, and I would expect 7.5% – 8% on an operating basis in q4 ’14, when the majority of the SP 500 has reported their q4 ’14 by late March ’15.

I do worry about the economic data getting weaker though. (However that is a separate post.)

In terms of the weekly earnings metrics, here you go (all metrics are based on the forward 4-quarter estimate):

Forward 4-quarter estimate for SP 500 as of 1/16/15: $124.91

P.E ratio: 16(x)

PEG ratio: 3.40(x)

Earnings yield: 6.19%

Year-over-year growth rate of forward estimate: +4.77% (Energy revisions are just crushing the forward estimate)

Summary/conclusion: With the three-day holiday this weekend, I plan on throwing up an earnings-related blog post every day this weekend, so to keep the earnings summary short and sweet for readers, with SP 500 operating earnings growing at mid to high single digits the last few years (5% – 8%), and the forward p.e ratio on the SP 500 trading between 14(x) and 16(x) the forward estimate, the SP 500 remains pretty fairly valued, with earnings growth (in my opinion) driving market appreciation as opposed to p.e expansion.

In 2013, the year the SP 500 was up roughly 32%, SP 500 operating earnings growth was 7.5% – 8% (again).

Despite the JP Morgan, Bank of America and Citi weakness this week, I still like Financials as our top sector pick for 2015.

More to come later this weekend.

Thanks for reading.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

1.10.15: SP 500 Weekly Earnings Update: “Ex-Energy” Q4 ’14’s Expected SP 500 earnings Growth Rate Around 7%

January 10, 2015 at 4:42 pm | Posted in AA, Earnings, Earnings estimate revisions, Financial sector, Sector Earnings Growth Estimates, SP 500 Revenue Growth, Weekly Earnings Update | Leave a comment

Per ThomsonReuter’s This Week in Earnings, q4 ’14 SP 500 earnings, which started getting reported this Monday, January 12th, 2015 with Alcoa’s report after the bell, are expecting 4% year-over-year (y/y) growth as it stands right now, even with the Energy sector’s expected y/y decline of 20%. (Long AA)

That actually isn’t too shabby in terms of expected SP 500 earnings growth for q4 ’14.

One thing I’ve noticed doing this weekly for almost three years now, updating my spreadsheet weekly since late 2001, early 2002, and writing about this topic on this blog for almost 3 years running, is that every quarter, particularly after the great Recession of 2008 and into early 2009, the sentiment around the pending earnings quarter gets very dire, and expectations get very subdued, and then actual earnings show pretty decent growth, both in quantity and quality of those earnings.

Q3 ’14 earnings now concluded

For example, here is our weekly blog post way back in early August ’14, where we took a look at q3 ’14 and q4 ’14 earnings long before the crude oil plummeted from $110 to below $50 per barrel, and q3 ’14 earnings which is “in the books” as of last weekend saw +10.3% earnings growth y/y, versus the +6.4% expected on October 1 ’14. (Q3 ’14 was influenced positively by the easy earnings compare of JP Morgan’s huge writedown taken in q3 ’13. If we exclude that writedown, SP 500 on an operating earnings basis I’m guessing will be close to 9%, which I will verify with Thomson Reuters.)

q4 ’14 earnings

Using (FC – marketcapvsearningswt) this spreadsheet, courtesy of Greg Harrison of Thomson Reuters, which shows the Sp 500 by earnings weight and market cap,  if we assume Energy is roughly 11% of the SP 500 by earnings weight and Energy sector’s earnings growth has declined from an expected +6% on October 1 to -21% as of Friday, January 9th, 2015, then we could reasonably estimate that Energy as a whole is roughly a 3% drag on the Sp 500’s q4 ’14 expected earnings growth rate. (11% * -27% = -3%).

With a starting expected earnings growth rate today of 4%, we should assume that “ex-Energy” the SP 500 is headed into q4 ’14 earnings season with an expected growth rate of 7%.

Allow for some one-time write-offs, etc. and we are starting the q4 ’14 earnings season with an expected growth rate of 6% – 8%, and as a “base” estimate headed into a quarter, that is actually a pretty decent starting point.

Thus, I expect when q4 ’14 is concluded on March 31 ’15, and all 500 companies have reported, the actual earnings growth rate will be close to 10%, similar to q3 ’14.

The weekly data update: 

For the data junkies and geeks (as I am) here is the SP 500 valuation data using the Thomson earnings data as of January 9th, 2015:

  • Forward 4-quarter estimate: $126.35, down slightly from last week’s $126.80
  • Forward p.e ratio: 16(x) (By comparison, the forward p.e on Jan 10 ’14 was 15.3(x) so the market isn’t seeing much p.e expansion)
  • Forward PEG: 3.24(x), and still elevated
  • Earnings yield: 6.18% 
  • Y/Y growth rate of forward estimate: 5.02% near last week’s 5%

A couple of closing items before we wrap up the earnings update for the week:

Q4 ’14 revenue growth for the SP 500 is expected at +1.1%, with an expected decline in the Energy sector of -15% for the quarter;

The current bottom-up estimate for full-year 2014 for the SP 500 is $116.94 per Thomson, so the SP 500 will finish short of my original estimate of $120 which we wrote about in late 2013, early 2014.

The current bottom-up estimate for full-year 2015 for the Sp 500 is $125.95.

Both numbers are being heavily influenced by the drop in Energy growth estimates and the Financial sector write-downs.

Thanks for reading. A lot of geeky data and navel gazing.

The bottom line is SP 500 earnings growth is pretty healthy and shouldn’t be construed in any way as market negative.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

1.8.15: 2015 SP 500 Earnings Webinar Tonight with Bob Lang of Explosive Options

January 8, 2015 at 3:34 pm | Posted in Bob Lang Webinar, Factset earnings data, Financial sector, S&P 500, Sector Earnings Growth Estimates | Leave a comment

Bob Lang, of Explosive Options was kind enough to invite me on tonight, January 8th, 2015 at 4 pm central for an “earnings webinar” where we talk about both 2014 actual earnings and 2015’s expected earnings growth and where you might benefit in terms of portfolio positioning for 2015.

Here is one link that I hope works:https://t.co/pKvn6RoBls for tonight.

Here was last weekend’s Fundamentalis.com blog post where we talked about our top sector for 2015, noting how the sector’s revisions are shaping up similar to late 2012, where we made a similar call and the Financials had a great year, outperforming the SP 500.

There is more to the fundamental case for Financials, which we will discuss tonight.

Here is an earlier blog post talking about how Energy’s revisions are having a definite influence on SP 500 valuation metrics.

Finally, here is our December 11 blog post on the SP 500’s 10 sectors, comparing their earnings weight to their market capitalizations. This is more important than you think.

Tune in tonight, to www.explosiveoptions.net to hear the webinar, on SP 500 earnings.

We will be incorporating earnings detail from both Thomson Reuters and Factset’s excellent weekly earnings detail.

I’d like to thank Bob Lang in advance for the opportunity to talk about SP 500 earnings on his show.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

1.3.15: SP 500 Weekly Earnings Update: Financials My Top Sector Pick for 2015 – Here is Why

January 3, 2015 at 4:39 pm | Posted in Consumer Discretionary, Earnings, Earnings estimate revisions, Financial sector, Financials, Fwd 4-qtr growth rate (SP 500), S&P 500 | Leave a comment

Although Thomson Reuters didn’t update their data correctly this week, the “forward 4-quarter” estimate saw its typical quarterly bump this week to $126.80 from last week’s $122.85.

This isn’t an unusual dollar increase in the forward estimate as we roll into a new “forward 4-quarter” data point, which now constitutes the calendar year of 2015 (q1 ’15 through q4 ’15), while the previous forward 4-quarter period constituted the q4 ’14 through q3 ’15.

The bottoms up estimate for the SP 500 for 2015 is now $126.49, while the top-down estimate (of which there are 5 strategists putting out a dollar figure) is $126.80, so the difference between the two is actually smaller than in prior quarters and years.

The p.e ratio on the forward estimate is now 16(x).

The PEG ratio is 3.25(x), very elevated, bit about at the same level we saw through most of 2013.

The earnings yield on the SP 500 has jumped to 6.16% versus last week’s below-6% number.

The y/y growth rate of the forward estimate is just 5% today, being pulled down by the absolute hammering of the Energy sector estimates. Ex Energy, my guess is that the y/y growth rate of the SP 500 is closer to 7.5% – 8%.

Analysis / commentary:  Financials continue to be my favorite sector for 2015, for a couple of reasons. Watching the pattern of earnings revisions for 2015 sector earnings growth estimates for 2015, as we moved rough the 4th quarter of 2014, allows me to draw the same conclusion about Financial stocks that I did in late 2012, here, here and here.

While I expect an average year of earnings growth for the SP 500 8% – 10%, that doesn’t mean the SP 500 will trade 8% – 10% higher since p.e expansion and contraction matters greatly, but by overweighting Financials, at leats in terms of relative earnings growth amongst the sectors, investors have a reasonable chance at stability in a tough market, and outperformance in a favorable tape.

Here is the full-year 2015 sector earnings growth estimates as of Jan 2, 2015, and that sector’s expected growth rate since October 1 ’14:

Consumer Disc: +16.8%, vs +18%

Consumer Spls: +6.6%, vs +9%

Energy: -23%, vs +6.9% (a whopping 29.9% decline in earnings growth in just 12 weeks)

Financials: +17.8%, vs +16.7% (doesn’t seem like much, but an upward bump while every other sector has been revised lower is an important tell)

Health Care: +10.5%, vs +11.6%

Industrials: +9.7%, vs +11.5%

Basic Mat: +14.7%, vs +19.1%

Technology: +11.3%, vs +12.5%

Telecom: +4.9%, vs +6.5%

Utilities: +2.5%, vs +2.8%

SP 500: +8.1%, vs +12.4%

The Financial sector is the only sector that has seen a bump in 2015 expected earnings growth in the last 12 weeks. That was an important tell in late 2012.

As of today, the Financial sector is also the sector showing eth highest expected 2015 earnings growth at +17.8%%, with Consumer Discretionary a close 2nd place at 16.8%.

I absolutely don’t promise that 2015 will be like 2013, i.e. when the SP 500 rose 32.5%.

The fundamental story on Financials will be flushed out in the next week. I think a lot of it has to do with Congress and regulation.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

1.1.15: A Look at Equity Style Boxes for 2014

January 1, 2015 at 11:28 pm | Posted in Growth v Value, Style analysis | Leave a comment

Weekly SP 500 earnings data won’t come out until tomorrow, January 2nd, 2015, from Thomson Reuters and Factset.

Examining the charts this first day of 2015, I happened to look at some of the “growth” and “value” ETF’s.

Morningstar has two ETF’s that divide the large-cap universe:

JKE – iShares Morningstar Large Growth Index ETF

JKF – iShares Morningstar Large Value Index ETF

What surprised me was the annual return difference between the two: Growth was up +13.9% for 2014, while Value was up 7% – 7.5% per Morningstar’s own performance calculator, and that was calculating the return from 12/31/2013 through 12/31/2014.

This probably isn’t a big surprise since readers can probably guess that Apple was Growth’s largest holding at 11%, while Exxon (XOM) was Value’s largest weighting at 7.77%.

Still the performance difference seemed sizable enough to warrant the note.

I guess just looking at 2014’s annual return between the SP 500 – roughly 13.5% – and the Russell 2000 – about 4.8% gets us to the same result, so perhaps this isn’t that revelatory.

Only in the Mid-Cap range did Value outperform Growth: The iShares Russell MidCap Value returned 12.75%, while the iShares MidCap Russell Growth index returned 10.9% (2014 returns were checked against two different sources.) Even though Sempra Energy was the largest name in the Russell MidCap Value ETF its weighting was just 0.87% and the other top 10 names were tech, utilities, and financial-related.

In the smallcap style box, Growth was up about 5%, versus Value’s 2%.

Analysis / commentary: For clients, I have always primarily fished in the large-cap universe, and even today with the SP 500 considered fairly valued at 16(x) – 17(x) forward earnings for an expected 7% – 8% growth rate for 2015, I still think the value in the market remains with the late 1990’s tech leaders, the Nasdaq 100 (Q’s) and the SP 100. That isn’t just the cheapest part of the market, but it is also the part of the market with the best cash-flow valuations and the best return-of-capital (dividends and share repo’s) policies.

The 1990’s bull market was led by Technology and Financials. The 2000 to 2009 leadership was Gold, commodity and Energy based, while the worst sectors last decade were Financials and Technology. The tide is turning back to the old leadership.

It is the old growth leaders of the 1990’s, and some of the new youngbloods that offer the best risk-reward should we see that inevitable 20% correction at some point.

In the period from 1/1/2000 through 12/31/2009, the Growth leaders of the 1990’s became the Value stocks of that decade, and since 1/1/2010.

The Financial’s are my top sector pick for 2015, but there likely be overweights in Technology, Industrials, and Retail (Staples / Discretionary).

Thanks for reading in 2014.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

12.27.14: SP 500 Weekly Earnings Update: Energy Sector’s Downward Revisions Continue Distorting SP 500 Metrics

December 27, 2014 at 7:56 pm | Posted in Crude oil / Energy, CVX, Earnings, Earnings estimate revisions, Energy sector, Oil Services Co's, SLB, XOM | Leave a comment

Per Thomson Reuter’s This Week in Earnings, the forward 4-quarter earnings estimate for the SP 500 fell by $1.00 this week to $122.48 from last week’s $123.48.

The p.e ratio on the forward estimate is 17.0(x).

The PEG ratio is just over 3(x), which looks like it is quite stretched from a historical perspective.

The earnings yield on the SP 500 is 5.88% and is the lowest in about 10 years, per my spreadsheet which tracks the data back to early 2001.

The year-over-year (y/y) growth of the forward estimate has fallen to 5.59% from last week’s 5.71%.

Analysis / commentary: While a lot of the above relative valuation metrics for the SP 500 are indicating the SP 500 is looking pretty extended from a valuation perspective, the decline in the Energy sector estimates are distorting the SP 500’s earnings picture, particularly the forward estimate. What worries me is that with the absolute shellacking the Energy sector’s forward estimates have taken since October 1, is it masking weakness elsewhere in the SP 500 ? Right now, that is hard to tell, given the numbers.

Without getting too wonky or “mathy” for readers, I did want to show the rate of change for Energy sector estimates for the last 3 weeks, for each forward quarter starting with q4 ’14 and through q3 ’15. The numbers are startling. The rate of downward revisions to the Energy sector is actually accelerating, and is moving out further and further into 2015. Since I wont be able to see q4 ’15 numbers until next week (nor will readers) it will be interesting to see the change in estimates for q4 ’15 given that crude oil will be lapping the easier compares from q4 ’14.

Here is the spreadsheet: FCEnergyRtofChange

This week’s revisions are not as ugly as last week’s rather sizable downside revisions, i.e. race to the bottom.

What puzzles me is that the damage to some large-cap Energy stocks like Exxon, (XOM), Chevron (CVX), and Schlumberger (SLB) are not as bad as the sector revisions would suggest. In other words, there seems to be a disconnect between stock price performance and the change in Energy sector estimates. A name like Schlumberger as a large-cap oil service name is “levered” to crude oil prices. I would have thought the stock would be trading far closer to the 2012 low of $60 per share, than its current close on Friday of $87.13, after a 40% drop in the price of crude oil in the last 6 months.

I hate to extrapolate from casual market observations, but either the decline in the price of crude oil is temporary as some are suggesting, or SLB has some significant downside ahead in the price of the stock.

Basically I haven’t seen this kind of downward flush in sector earnings growth since Technology in 2001 – 2002, when the Tech sector bottomed at -80% or the collapse in Financial stocks in 2008 – 2009.

More to come this weekend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

 

12.21.14: Ranking SP 500 Sectors Strongest to Weakest in terms of 2015 Expected Earnings Growth

December 21, 2014 at 10:38 pm | Posted in Apple (AAPL), AT&T (T), Financial sector, Financials, Industrials, Sector Earnings Growth Estimates, SP 500 forecast(s), Technology | Leave a comment

Looking at the changes in 2015 expected earnings growth by sector since October 1 ’14, and as of December 19 ’14:

1.) Financials: +17.6%, +16.7% ( a slight increase in the last 11 weeks, which is better than the rest of the SP 500)

2.) Consumer Discretionary: +16.8%, +18% (still strong, but surprised revisions haven’t been better given drop in crude oil – homebuilders, auto’s could be a drag)

3.) Materials: +14.8%, +19.1% (Basic Mat seems to always start strong – having a tough q4 ’14 in terms of stock performance. This will go lower).

4.) Technology: +11.3%, +12.5% (Tech is our second favorite sector for ’15, after Financials).

5.) Health Care: +10.8%, +11.6% (Given ’14’s actual Health Care earnings growth for has doubled from 8% to 15.9%, thought ’15 expectations would be stronger)

6.) Industrials: +9.7%, +11.5% (have to think dollar impacting estimates in Industrials)

SP 500: +8.4%, +12.4%

7.) Consumer Staples: +6.8%, +9.0% (dollar will impact Staples for sure. Wild card for ’15, but odds are dollar remains strong in ’15)

8.) Telco: +5%, +6.5% (price war in wireless, long T as bond proxy in balanced and bond accounts given 5.5% yield – hiked dividend this last week too)

9.) Utilities: +2.5%, +2.8% ( stayed away given interest-rate sensitivity – bad call on my part)

10.) Energy: -20.4%, +6.9% ( a whopping 27% or 2700 basis point change in full-year ’15 earnings expectations for Energy sector. A lot of the stocks don’t reflect that earnings pessimism yet. q4’14 earnings for Energy will be WAY interesting)

Analysis / commentary: our favorite sector going into ’15 will be Financials, since the revisions are setting up just like they did in late 2012. Seeing a positive revision trend against negative revisions within the SP 500 as a whole is very positive. It bodes well for those of us that play both the absolute and relative performance and earnings game. I do like Technology, but I think AAPL will find it tougher and tougher to replicate ’14 returns given its market cap. I don’t know that I will sell AAPL, I just don’t think I will add to the position. Frankly, Id rather own Cisco here than AAPL. (More to come – by the way, readers should take all forecasts and opinions with skepticism. As a client once told me “opinions and forecasts are like vital body openings, i.e. everybody has one.”)

Many thanks for reading the blog in 2014. I’ll have more to post this week.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

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