What a quarter for stock investing: record inflation, rising interest rates, a bear market, ongoing geopolitical tensions, a crisis in cryptocurrency investing, and much more. As companies start to tell us how they did, we will be able to detect where the biggest opportunities are hidden.
What do analysts expect about investing in stocks?樂
Analysts expect S&P 500 Profits for the second quarter, 4,3% higher than in the same period last year. If they're right, it would be the lowest earnings growth since the fourth quarter of 2020. But there's still growth to be discovered. It could be higher in the energy industry, where benefits are expected from 215% compared to the same period last year, although perhaps not a surprise given the circumstances with oil prices this year. The expected profit growth for investing in stocks industrial business (27%), materials companies (14%) and real estate companies (11%) are low in comparison, but worth keeping in mind. The biggest profit drops come from of investing in stocks financial (-21 %), public services (-10%) and, like the last quarter, consumer discretionary companies (-3%), as high inflation forces consumers to tighten their belts.
S6P 500 earnings growth by sector. Source: FactSet
Any stock investment opportunities?類
A simple strategy to carry out would be to overweight our investment in US stocks towards sectors with high earnings growth and downweight (or completely avoid) sectors where earnings are expected to decline. We can use this strategy by looking at the recent stock investment price performance and the direction of earnings forecasts. The investing in energy stocks In the US, for example, they fell 6% on average last quarter (although they are up 32% this year). However, analyst forecasts for second-quarter growth have risen from 137% to 215%. That suggests there could be an opportunity if those stocks can meet or exceed expectations.
Investing in energy stocks has performed well throughout this year. Source: Bloomberg
Can this strategy be applied in other sectors of stock investing?里
We can apply the same strategy for the other key sectors. The 16% drop in investment in industrial stocks last quarter versus a modest rise in earnings growth forecasts potentially shows us an attractive scenario for this earnings season. Investment in materials stocks fell 17% last quarter, but earnings growth expectations have more than doubled in the past three months, also making them a potentially attractive stock investment opportunity. Investing in real estate stocks is perhaps the least interesting of the bunch: its 17% drop last quarter was not accompanied by a big change in earnings growth forecasts.
Price variation of investment in shares of companies in the real estate sector. Source: Fortune
These sectors reflect the average of a wide range of companies. We may want to apply the approach to investing in individual stocks that interest us. For example, the oil giant Exxon: Its shares rose about 5% last quarter, but its second-quarter earnings forecast rose 28%. Now, let's divide this 28% by 4 to give an estimate of the annual profit. Ignoring the next two quarters, we'll see a 7% rise in earnings versus a 5% rise in the share price. All things being equal, this seems well balanced. So if we're looking for individual stock investment ideas in the energy sector this earnings season, best to look elsewhere.
Comparison of Exxon Mobil results. Source: Exxon Mobil
To do it yourself, you can use a free tool like Koyfin which allows you to track the price performance of your investment in company or industry shares and compare it with profit forecasts. Simply search for what interests you in the search bar and you can do a set of calculations to discover some new opportunities.