Earnings season is wrapping up for the majority my recommended stocks. Overall, it has been a fantastic quarter for our fundamentally superior stocks. I want to take a few minutes today to start to look ahead to Q3 earnings and what we can expect.
The S&P 500 had strong second-quarter results. S&P 500 companies averaged 5.6% annual sales growth and a 12.1% annual earnings growth in the latest quarter. And while the S&P 500’s earnings are expected to slow down a bit in the third quarter, we are still set to see a strong year for earnings growth. To put it in perspective, for the upcoming third quarter, the S&P 500’s earnings are forecasted to grow at a 6.8% annual pace. That’s about half of what we experienced for the second quarter. The reason for the slowdown in the current quarter is due to less favorable forecasted earnings for the energy stocks in the S&P 500.
However, nine of the 11 sectors of the S&P 500 are forecasted to post positive earnings–and energy is still forecasted to have 131.3% annual earnings growth in the current quarter. Telecom and Utilities are the only two sectors expected to post third-quarter earnings declines. I find it a little odd that third-quarter annual earnings are decelerating for the S&P 500 at the same time that a weaker U.S. dollar is boosting earnings for multinational companies. The reality is that GDP growth is actually accelerating right now, so I wouldn’t be surprised if analysts revise their earnings estimates higher and we see some big earnings surprises in the third quarter.
In fact, last week, we received further confirmation that global economic growth is improving. For example, Japan’s GDP grew at a 4% annual pace in the second quarter, which is truly amazing for an aging population. That’s also well above economists’ consensus estimate for 2.5% annual GDP growth. But this robust growth is not just limited to Japan…
Here in the U.S., the Commerce Department announced that retail sales soared 0.6% in July, which represents the highest level in seven months. That also topped economists’ consensus estimate for 0.4%. In addition, June’s retail sales were revised to a 0.3% increase, up from an initial estimate of a -0.2% decline. Due to June’s substantial 0.5% upward revision, economists will likely revise their second-quarter GDP estimate higher.
The Conference Board also announced last week that its leading economic index (LEI) rose 0.3% in July following an explosive 0.6% rise in June. In July, the only drag on the LEI was housing permits, but most economists concluded that due to a healthy market for new home construction that this was an anomaly. The continuing improvement in the LEI implies that U.S. economy is on a firm footing and could signal even more GDP growth in the second half of the year.
Clearly, the U.S. economy is continuing to improve and power forward–and we have strong economic growth worldwide. Add in low interest rates and strong earnings growth, and it’s easy to see why the stock market continues to be the real winner in this environment.
Be sure to save your portfolios in my Portfolio Grader so that you can always get my take on your stocks and you’ll know each week if those stocks are going to benefit from the next earnnings season.
If you’ve used my Portfolio Grader tool or have kept up with this blog, you know that I put a lot of weight on what analysts are saying about any given stock. And an effective way to judge how the analyst community feels about a stock is tracking their earnings estimates for the quarter.
Upward revisions are an important indicator of a company’s future success. You see, analysts are paid to estimate a company’s earnings outlook. If an analyst makes a wrong estimate that ends up costing investors money, that analyst could be out of a job. If a number of Wall Street analysts start to move their forecasts higher, it’s a good bet that the stock will outperform expectations and deliver market-beating returns to investors since positive revisions are never made lightly.
I know that I usually focus on sales and earnings growth when these reports come out. But now that we’re in the swing of second-quarter earnings season, we’re seeing interesting analyst activity regarding some of the hottest names on Wall Street. While the market may have not reacted to these upgrades just yet, I want you to be prepared for what’s to come for the impending earnings season.
To get to the point, here are several companies that have the analyst community buzzing, and they should be on your radar as well.
- Applied Materials Inc. (AMAT): Over the past 90 days, analysts have hiked up their EPS estimates from $0.66 to $0.84, a 27.3% increase. The consensus estimate is calling for 30.7% annual sales growth and 68% annual earnings growth. AMAT is an A-rated Strong Buy.
- JD.com Inc. (JD): Over the past 90 days, the consensus EPS estimate has jumped from $0.07 to $0.08—a 14.3% increase. Right now, analysts are calling for 36.9% annual sales growth and a whopping 100% annual earnings growth. JD is an A-rated Strong Buy.
- NVIDIA Inc. (NVDA): Over the past ninety days, the consensus EPS estimate has jumped from $0.62 to $0.70—a 12.9% increase. The consensus estimate is for 37.3% annual sales growth and 75% annual earnings growth. NVDA is an A-rated Strong Buy.
- Sociedad Quimica y Minera de Chile (SQM): Over the past 90 days, analysts have hiked up their EPS estimates from $0.35 to $0.41, a 17.1% increase. Right now, analysts are calling for 5.7% annual sales growth and 32.3% annual earnings growth. SQM is an A-rated Strong Buy.
- Weibo Corp. (WB): Over the past 60 days, analysts have revised the consensus EPS estimate up from $0.29 to $0.36, a 24.1% increase. The current estimate is for 68% annual sales growth and 125% annual earnings growth. WB is an A-rated Strong Buy.
To put these earnings estimates into perspective, analysts forecast that the S&P 500 will post 9.1% year-over-year earnings growth for the current quarter. This means that each of these stocks are outperforming the majority of stocks in the market and are well-positioned to continue to beat the odds.
If you want to see how the analyst community feels about one of your holdings, feel free to run it through my Portfolio Grader screening tool. After hitting “submit,” you’ll see that one of the components of the stock’s Fundamental Grade is “Analyst Earnings Revisions.”