Being big fans of how SP 500 sector earnings growth estimates change over time, particularly as the estimates trend versus sector action in the market, we wanted to put out for readers, how the SP 500 Sector estimates have evolved for 2014, and how the sectors rank versus the expected earnings growth for the SP 500 as a whole.
2014 Sector Estimates Ranked by Fastest to Slowest Expected Growth
The first column is the SP 500 sector, the 2nd column is the sector earnings growth estimate as of 12/27/13, and the 3rd column is the sector growth estimate as of October 1, ’13:
Basic Materials: 17.2%, 18%
Consumer Disc: 13.6%, 18.7%
Telco: 13.5%, 10.9% (We discount Telco as a sector given there are only 6 co’s in the sector, within the SP 500 – is that material ? Buy VZ, and T and you own the sector)
Energy: 13%, 10.7% (One of only two major sectors to see an upward trend to ’14 earnings growth for last 6 months of 2013)
Financials: 10.9%, 9.3% (The other sector to see upward revisions to ’14 earnings growth already in ’13)
SP 500: 10.9%, 11.4%
Technology: 10.6%, 11.6% (still dominated by AAPL), but good value remains in old tech
Cons Spls: 10.1%, 10.8% (organic growth is 4% -5%. With stronger dollar will likely get revised lower)
Industrials: 9.4%, 11%
Healthcare: 8.3%, 9.6%
Utilities: 4.9%, 4.4% (Oversold sector currently, just 3% of SP 500)
Perspective: 5 of the 10 SP 500 sectors are scheduled to grow earnings in 2014 at higher rates than SP 500. Our sleeper sector for ’14 is Basic Materials, but we still like Technology, Industrials and Financials. Telco and Utilities tend to perform better in turbulent markets, like 2011, when both were part of the dividend trade. Healthcare did well in ’13, led by biotech. Our only biotech long is AMGN, which is more of value, rather than growth biotech.) In late 2012, we were pounding the table on Financials given the trend in earnings growth estimates. Energy and Financials is looking good for ’14 already.
We will update this spreadsheet in mid-February ’14 after the q4 ’13 earnings season officially ends. The changes from now until that point in time will be telling.
At present, in 2014, the SP 500 is expected to grow earnings 10.9%, but we think that when 2014 is concluded, SP 500 will have grown earnings at a faster rate, maybe materially.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager