3.30.13: Healthcare and Staples Led Q1 ’13 SP 500 performance

With 494 of the SP 500 companies having already reported 4th quarter, 2012, financial results, this coming week will be quiet from an earnings perspective, as we await the flood of q1 ’13 financial releases, which begin Tuesday, April 8th, 2013, with Alcoa’s release after the bell.

As we end March, the “forward 4-quarter” estimate for the SP 500 ends the quarter at $111.84, down from $111.96, and down a smaller-than-expected $2.04 since the typical “pop” in the forward estimate which occurs the first week of every quarter.

Next week, when we get the forward roll into the month of April, I expect the forward estimate to be up close to $115 or better, and a new record for forward earnings.

The SP 500 is trading at 14(x) the current forward 4-quarter estimate, with an earnings yield of 7.13% and year-over-year growth in the forward estimate of 5.52%.

Stat of the week: When ranked by both actual revenue and earnings growth here is how the sectors performed in q4 ’12:

Actual Earnings growth:

Financials: +17.4%

Materials: +13.7%

Consumer Staples: +9.9%

Consumer Discr: +9.8%

Utilities: +7.3%

Energy +6.4%

SP 500: +6.3%

Technology: +3.3%

Healthcare +1.2%

Industrials: -4.5%

Telco: -12.5%

Actual Revenue growth:

Financials +20.7%

HealthCare +7.7%

Technology +5.5%

Consumer Discretionary +5.0%

Utilities +4.7%

SP 500 +3.6%

Consumer Staples +3.4%

Telco +3.1%

Industrials +2.2%

Materials +0.1%

Energy -10.8%

So how did each sector perform in q1 ’13, compared to the above q4 ’12 financial results ?

Healthcare +15.22%

Consumer Staples +13.77%

Utilities +11.84%

Consumer Discretionary +11.76%

Financials +10.92

SP 500 Total return +10.61%

Industrials +10.08%

Energy +9.57%

Telco +8.20%

Technology +4.21%

Materials +4.17%

(Source of the above sector return data was Eddy Elfenbien’s blog found via StockTwits, dated 3/29/13. )

Commentary: even though Financials ranked first in terms of both revenue and earnings growth for q4 ’12, the sector finished 4th in terms of total-return ranking in the Q1 ’13. Healthcare performed the best in Q1 ’13, with healthcare’s percentage of the SP 500 being 12%, and per the revenue and earnings growth rankings, was just mediocre.

Sector performance is no doubt influenced by market cap, as well as the combination of forward earnings revisions, and current financial results. Our current healthcare longs are Pfizer (PFE), Merck (MRK), and Amgen (AMGN), although we have exposure to JNJ as well. (long All 4 names.)

With Healthcare and Staples outperforming it tells me that the market is valuing stable, consistent earnings growth, at a higher multiple, than pure growth or pure value stocks.

Technology is no doubt still heavily influenced by Apple (AAPL) – long AAPL. We are overweight technology and it disappointed in Q1 ’13.

Contrary to headlines, this is a healthy stock market, with a premium on stability in earnings and revenues. The next rotation should be towards growthier, higher p.e names, when it does happen, and when the market perceives the economy is poised to accelerate.

We think a lot of names in tech offer good value today: Apple, Intel, Microsoft, etc. (Long all three)

 So what is different about 2013 ?

If we look at 2013 relative to the last three years (and so many out there are expecting the “sell in May” correction):

1.) Housing is improving nationwide, according toe Case-Shiller and the other price indices.

2.) The 10-year Treasury hasn’t made a new low since late July ’12.

3.) Job growth COULD be beginning to accelerate. We’ll know more on Friday, April 5th. Consensus is for 200,000 jobs created by the economy in March ’13.

Holiday weekend. We are going to keep it short this week. All the SP 500 sectors are overbought so be careful with new money. Look for oversold stocks, like Intel (INTC) and Caterpillar (CAT) and a few others. IBM remains a question mark, but the stock is hardly expensive.

Thanks for reading and stopping by:

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

312-810-3480

 

 

 

 

 

 

 

 

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