The “forward 4-quarter” earnings estimate for the S&P 500 fell to $103.38 last week, down slightly from the previous week’s $103.80 and a continued drip lower from the July and October peaks of $107.
Still, with the semiconductor preannouncements and weaker guidance from companies like MMM, a drop from $107 to $103 over a 5 – 6 month time span isnt too bad.
Currently, 2012 forecasts are calling for 10% earnings growth for the S&P 500. What makes a tough forecast more difficult is that in 2011, the S&P 500 grew earnings 14.4%, but as of today, the key index is up just 1% – 2% on the year, so the p/e ratio continues to “compress” which has been the case for the last 10 years (more or less).
Here is how the sector growth rates are shaping up for 2012 (and this will undoutedly change when management’s start giving 2012 guidance in January) as ranked from highest to lowest expected growth rates:
Financials +22% (how is that for a surprise…)
Consumer Discretionary +13.2%
Industrials +13.2%
Materials +9.7%
Technology +9.2%
Cosnumer staples +8.9%
Telecom +8.7%
Healthcare + 4.%
Energy +2%
Utilities -1.9%
S&P 500 +9.9%
Energy’s expecetd growth rate is +2% for 2012 versus the 37.5% expected for full year 2011. That is a big drop in expectations. Utilities are the only sector currently expected to show negative earnings growth for 2011, and yet it is still the best performing sector for 2011 in terms of total return, so either the estimates are wrong or ute’s havent begun to discount the negative return. In 2011, ute’s earnings growth were roughly flat on the year, again, comparing earnings growth to stock price performance of 2011′s return for utility stocks of +15%.
2012 should be the year that favors investors who find stocks that can generate stable and consistent growth rates regardless of the surrounding economy. This portends favorably for consuner staples, and high quality brands, for which most of you are familiar. (Coca-Cola, P&G, Philip Morris, Nike, etc. etc.) No doubt there will be surprises here too. I think energy estimates might be too low for 2012. Large-cap pharma could be shaping up to be a big surprise for the next year as well.
I’m still surprised that financials are the fastest sector growth rate expected for next year.
(Long KO, MCD’s MO, NKE, CVS, underweight energy – weighting is about 10%)
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