Earnings trends | stockbee


Earnings trends

Zacks is the best resource for keeping tab on overall earnings trend. As per their database we are headed for another double digit quarter. Also the earnings trend for large caps is better than small caps, that is why small caps are lagging. That weakness might persist till next earnings season. Small caps are more reactive to earnings, while in large caps earnings are anticipated.

Almost 60% of the results are in, and earnings continue to surprise to the upside. As things stand now, the median S&P firm will post double-digit year-over-year earnings growth for the 19th straight quarter. While the 10.5% growth is still lower than previous quarters it is much better than expected. The surprise ratio now stands at 3.8:1, down from almost 5:1 a week ago, but still very strong. Positive surprises have been widespread, with every sector showing more positive surprises than disappointments with the exception of Telecom, which has only seen two firms report, and Utilities.

Health Care appears to be the real standout so far this quarter, posting 15.4% year-over-year growth with 26 positive surprises against only four disappointments. The median surprise is a very strong 5.5%. The Materials sector is also having a very robust quarter, with 14.6% year-over-year growth and positive surprises outnumbering disappointments by more than 5:1. Tech appears to be the laggard this quarter, with median earnings of only 1.35%. However even here, positive surprises are far exceeding disappointments by more than 3:1, including large positive surprises by many high profile firms. Telecom is actually showing negative growth, but with only two reports in, it is to early to draw any conclusions about that sector.

It is worth noting that the results so far have been much stronger for the S&P 500 (large-caps) than the S&P 400 (mid-caps) and the S&P 600 (small-caps). Large caps have been much more active in shrinking their share bases through stock buybacks than have their little brothers, and they also tend to have more foreign exposure and thus benefit from the very weak dollar.


The Sound said...


I like the more traditional font size and background you have chosen.

Pradeep Bonde said...

I mix and match to avoid blindness. Once people become familiar with color scheme or fonts, they tune out , and only look at certain elements, becoming bind to some.

Shiva said...

Excellent analysis..How would you incorporate this in your earnings trade? By focusing more on health care stocks with good earnings? allocating more trading capital to that sector? Increasing the risk profile if the earnings trade is on a health care stock? or does it even matter much?

Pradeep Bonde said...

It is more a background stuff which goes in to understanding why market is doing what it is doing. One can identify sector trends early. The stocks with good earnings anyway show up in my EP, IBD200, or 100% plus breakout list.

Style shifts like large caps v/s small caps , kind of information is useful, to take more large cap breakouts from the lists.

If you read it every week, you pretty much get a good fix on the overall market.

Because it is based on objective data rather than someones opinion, you can figure out that the idiots claiming Dow is going down 50%, are talking out of their hat.

All through March to July correction in 2006, the Zacks analysis was showing earnings were not going down, and they were clearly pointing to better earnings, while Barrons and other useless publications were talking of recession. The earnings projections never supported that hypothesis. If you go back and see, I use to post Zacks analysis every week earlier.

Once you understand it you can pretty much work out what is likely to happen in next earnings season.

Similarly S&P also published earnings trends , but it is a paid service.