Tough To Find A Strong Spot

10/15/2012


Profit expectations for the S&P 500 Index are falling, and investors looking for sectors with strong estimate revisions have few options.

Of the 10 main market sectors, none have seen profit estimates for the September quarter rise since July 1. Focus on full-year numbers, and the picture looks slightly better. As the table below illustrates, just one sector (utilities) has seen the consensus for the current year rise, while four (consumer staples, health care, materials, and telecom services) have higher 2013 estimates now than they did at the start of July.

PROFIT ESTIMATES TRENDING LOWER
-------------------------------- Estimated EPS Growth --------------------------------
---- Sep. Qtr. ----
---- Dec. Qtr. ----
Full-Yr. 2012
Full-Yr. 2013
S&P 500 Sector
As Of
July 1
(%)
Curr.
(%)
As Of
July 1
(%)
Curr.
(%)
As Of
July 1
(%)
Curr.
(%)
As Of
July 1
(%)
Curr.
(%)
Cons. Discret.
13.2
7.8
20.6
16.8
11.6
11.5
16.5
15.3
Consumer Staples
5.2
0.0
8.6
5.7
6.4
2.8
8.0
10.2
Energy
(14.2)
(18.1)
5.8
0.2
(5.7)
(8.7)
10.0
7.7
Financials
4.2
1.8
26.6
29.0
24.0
21.8
15.1
13.9
Health Care
0.2
(2.7)
5.2
2.6
2.2
2.0
7.7
8.1
Industrials
10.1
2.2
8.5
2.3
9.9
7.7
12.8
11.4
Materials
(3.3)
(24.2)
38.8
19.9
(0.7)
(8.3)
19.0
22.8
Technology
13.1
2.3
15.3
8.6
7.1
6.7
13.9
13.0
Telecom Services
(8.7)
(12.8)
11.7
4.7
(0.9)
(2.7)
17.5
23.4
Utilities
(7.1)
(8.0)
1.7
(4.4)
(7.8)
(7.4)
3.4
2.0
S&P 500 Index
3.1
(2.8)
13.9
9.9
6.3
5.0
12.4
11.9

This trend should come as little surprise. This quarter's ratio of 4.3 negative preannouncements for every positive preannouncement, well above the average of 2.3 since 1995, makes for an ugly estimate-revision signal.

Fortunately, not every company has fallen prey to the estimate malaise. We screened for stocks with a 30-day rise in estimates for the current quarter, next quarter, current fiscal year, and next year. Below we present 12 stocks that satisfied our criteria, companies representing eight of the 10 sectors. All earn an A rating on our Monitored List except for the utility, which earns an A rating in our quarterly Utility Update and is a component of our Top 15 Utilities portfolio.

RISING ESTIMATES
Company (Price; Ticker)
Sector
Foot Locker ($35; FL) 
Cons. Discr.
Wyndham World. ($54; WYN) 
Cons. Discr.
Walgreen ($36; WAG) 
Cons. Staples
Chevron ($117; CVX) 
Energy
BB&T ($33; BBT) 
Financials
Wells Fargo ($35; WFC) 
Financials
Express Scripts ($63; ESRX) 
Health Care
Thermo Fisher ($59; TMO) 
Health Care
Apple ($636; AAPL) 
Technology
EMC ($26; EMC) 
Technology
CF Industries ($218; CF) 
Materials
PPL Corp ($29; PPL) 
Utilities

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