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