Zacks predicts double digit earnings growth

The best commentary on earnings is at Zacks. If as predicted the earnings show double digit growth, we will find many good stocks. The multi month correction has separated the men from the boys. There are several good stocks forming nice bases at top of their range. Earnings will act as catalyst to trigger rallies for them.

This week is the “official start” of the second quarter earnings season with Alcoa (AA) having reported yesterday. I am expecting yet another very solid set of earnings to be reported. In all probability double-digit year-over-year growth…again.

Any problems the market is having are coming on the multiple side of the equation, not the earnings side. North Korea can fire all the missiles it wants and it is not likely to affect what any firm I can think of will report for the second quarter or for this year or next. International tensions do, however, reduce confidence and thus the multiple that the market trades at. The effect of another Fed rate hike in August (more likely than not, but not a slam dunk either) is mostly found on the multiple side as well.

Not only is strong growth currently expected for this year, but on balance analysts are continuing to raise more estimates than they cut. Over the last month six estimates were raised for every five that were cut. The increases were concentrated in the Industrial, Energy and Materials sectors — the sectors with the highest expected growth rates for this year. Add in below market P/Es in those sectors (particularly Energy) and you have a very convincing reason to overweight them in your portfolio.