Brian Gilmartin | Aug 09, 2015 12:19AM ET
Analysis / conclusion: With the vast majority of the S&P 500 having reported Q2 ’15 earnings, the EPS “beat” rate (actual EPS vs. the mean consensus estimate) is pretty solid at 71%, well above the average of 63% per Thomson Reuters. The revenue beat rate is far more disappointing at 49% versus the long-term average of 60% and, also per Thomson, the current beat rate of 49% is even below the last 4-quarter average of 56%.
However, if we look at the data, the majority of the “revenue” problem (ranked from top to bottom) is coming from three sectors:
A couple of things surprised me about this list:
Energy, which I thought would be far worse in terms of ranking, is just slightly below 50%, which could be telling us that Energy expectations have really gotten too low;
Consumer Staples is worse than Energy, which tells me that perhaps the dollar is a bigger influence than we thought
Industrials (!), wow, that 30% beat rate was surprising. I’m wondering if the sector is setting up for a longer-term opportunity for patient investors, with a portfolio hedge using the PowerShares DB US Dollar Bullish Fund (NYSE:UUP). This requires more homework, but the Industrial components are cash-flow rich, and reasonably-valued, at least the companies I follow fundamentally.
Telco, Utilities and Basic Materials are each about 6% – 7% of the S&P 500 by market cap. I would say the majority of the pain or drag of S&P 500 revenue is coming from Industrias which is 10% – 11% of the S&P 500 by market cap.
Of the Industrials, General Electric (NYSE:GE) is one of my favorites given the company is finally shedding GE Capital, getting good prices for the assets, and is returning to its true industrial roots. GE is still trading more than 50% below its September, 2000 peak of $60 per share. Every time the stock trades near $25.50, I start to pick at it for clients. A 3.6% dividend yield today, with a lot of apathy and little enthusiasm baked into the stock price, sounds good to me. Just be patient with the stock – more portfolio re-engineering is ahead.
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