Time flies! We are already into the third-quarter 2017 reporting cycle, and as always, investors are gearing up to make most of earnings season.
Talking of making the most, we believe that diversification is one of the most successful investment strategies. That being said, we have brought to focus five solid S&P 500 stocks from five top-ranked Zacks sectors, which are likely to gain ground this earnings season. However, before getting into the stocks, let’s take a look at the picture painted so far and the expectations for the third quarter on the whole.
A Glimpse of Yesterday & Signals for Tomorrow
Per the latest Earnings Trends, 22 S&P 500 companies have reported financial numbers. Notably, 86.4% of these companies delivered an earnings beat, with 81.8% surpassing revenue estimates. Further, total earnings of these firms advanced 27.1% year over year, buoyed by a 7.3% jump in revenues. Clearly, the performance so far is nearly at levels with the second quarter, though it displays a considerable improvement when compared with the 4 and 12-quarter averages.
A glimpse at the overall expectations for the third quarter reveals that total earnings for the S&P 500 index is envisioned to rise 2.3%, with revenues likely to jump 5%. Also, major contributions of the earnings growth are expected to come from the Energy, Conglomerates and Technology sectors, out of which Energy and Conglomerates are anticipated to witness double-digit earnings growth.
Diversification a Win-Win Strategy: 5 Gems from 5 Solid Spaces
While the overall earnings growth in Q3 is expected to be lowest among all four quarters of 2017, the earnings season still offers good scope for investors, especially in some top-ranked Zacks sectors that are likely to witness year-over-year earnings and revenue growth. The sectors demanding attention are the Conglomerates, Consumer Staples, Technology and Industrial Products that are ranked among the top 13%, 19%, 25% and 31%, respectively out of all 16 classifications.
Here is the winning strategy: Plucking an S&P 500 stock from each top-ranked sector that possesses a favorable combination of Zacks Rank #1 (Strong Buy) or 2 (Buy) with a positive Earnings ESP. Our research shows that the chance of a positive earnings surprise is as high as 70% for stocks holding such a combination. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here Are the Gems
Conglomerates (2 out of 16)
Expected Earnings Growth Rate in Q3 — 16.1%
Expected Revenue Growth Rate — 5.5%
Danaher Corporation (DHR - Free Report) is a global conglomerate that designs, manufactures and markets diverse lines of industrial and consumer products. With an Earnings ESP of +0.57%, the company is likely to beat earnings estimates when it posts third-quarter 2017 results on Oct 19.
Notably, this stock with a long-term earnings growth rate of 11.5% has surged 12.6% year to date, surpassing the sector’s 0.6% growth. Also, this Zacks Rank #2 company has a splendid positive earnings surprise history. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Consumer Staples (3 out of 16)
Expected Earnings Growth Rate in Q3 — 1.7%
Expected Revenue Growth Rate — 2.2%
New York-based Colgate-Palmolive Company (CL - Free Report) is a viable bet from the Consumer Staples space. This Zacks Rank #2 company with a long-term growth rate of 8.6% hasn’t reported a single negative earnings surprise in the trailing four quarters. In fact, its favorable Earnings ESP of +0.55% makes us reasonably confident of an earnings beat, when Colgate reports results on Oct 27. Notably, this global consumer goods behemoth has jumped 13.3% so far this year, beating the sector’s 12.3% rise.
Technology (4 out of 16)
Expected Earnings Growth Rate in Q3 — 9.7%
Expected Revenue Growth Rate — 6.7%
Facebook, Inc. (FB - Free Report) clearly remains strong in the technology space. This social media giant has topped earnings estimates in each of the trailing four quarters. Also, Facebook’s Zacks Rank #2 and Earnings ESP of +1.76% signal chances of the company to beat earnings yet again, on Nov 1. Facebook’s long-term growth rate of 24.5% and its marvelous stock performance is also worth noting. Evidently, shares of the company have soared 49.1% this year, crushing the sector’s solid growth of 23%.
Industrial Products (5 out of 16)
Expected Earnings Growth Rate in Q3 — 8.7%
Expected Revenue Growth Rate — 2.7%
Stanley Black & Decker, Inc. (SWK - Free Report) , which manufactures tools and engineered security solutions across the globe, has rallied 37.7% year to date, cruising the sector’s 18.4% growth. With a Zacks Rank #2 and an Earnings ESP of +2.09%, the company is likely to beat earnings estimates when it posts third-quarter 2017 results on Oct 24.
Notably, this New Britain-based company has a long-term earnings growth rate of 10.3%. The company’s robust earnings surprise record is a cherry on the cake.
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