Recent weeks have been dominated by escalating trade hostility between the United States and China and regulation of Big Tech. Starting this week, corporate earnings, revenues and management outlook will determine the future course of the stock market. Analysts are looking for a strong Q1 earnings season, mostly in response to the corporate tax cut policy signed into law last December, and robust economic growth both at home and abroad.
While the highest year-over-year earnings growth is likely to be notched by energy players, materials, construction, industrial products, technology and financials are also expected to contribute handsomely. Thus, for the next few weeks, let us keep an eye on stocks from these sectors that are likely to make the most of the Q1 earnings season. Here, we should also bear in mind that better-than-expected earnings performances generally lead to a rally in the share price, which eventually enthralls almost everyone, right from the top brass to research analysts.
Q1 Earnings to See Double-Digit Gains
Investors are looking forward to the outset of the Q1 earnings season on Apr 12 and 13, when bigwigs like BlackRock, Inc. (BLK - Free Report) , Wells Fargo & Company (WFC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) will be reporting their Q1 numbers, and for the whole of S&P 500 results are expected to be impressive.
Total earnings for the S&P 500 companies are estimated to improve 16% from the same period last year on 7.4% higher revenues. Such an uptick will follow 13.5% earnings growth on 8.5% revenue improvement last quarter, marking the best quarterly performance in more than six years.
The gains are likely to be broad-based, with nearly all the sectors expected to report year-over-year earnings growth, except for autos and conglomerates. Around 11 of these sectors are likely to come up with double-digit growth.
What Will Drive Earnings?
Earnings are likely to rise mostly on Trump’s polices, including tax cuts and solid global economic growth. The latest tax laws gave companies massive tax relief as they will now be paying between 8% and 15.5% instead of the earlier 35% for bringing back money held overseas.
Trump’s economy is also in good shape, with the jobless rate remaining at a 17-year low of 4.1% in March, while workers’ hourly wages rose 8 cents, or 0.3%, to $26.82 in the month. The United States at the same time added an average of 202,000 jobs a month in Q1, faster than the average gains in the same period of 2017 and 2016. U.S. consumer sentiment in March, by the way, reached its highest level since 2004, courtesy of a healthy job market.
The global economy too is estimated to expand at a rate of 3.1% year over year in 2018. This comes on top of a promising 3% growth rate in 2017, per the World Bank.
Potential Gainers of Q1
The energy sector is poised to report highest earnings growth among all sectors, which is estimated to surge 60.3% from the same period last year on 15.6% higher revenues. Among the sub-sectors, oil and gas exploration and production; oil and gas refining and marketing; oil and gas equipment and services; and oil and gas drilling companies are positioned to report solid growth. A healthy crude pricing scenario and positive free cash flow are primarily backing the optimism.
The materials sector has recently been looking up, with Q1 earnings expected to rise 41.4% on 20.2% higher revenues. Construction is likely to report the third-highest year-over-year profit growth, with Q1 earnings poised to be up 36.1% from the same period last year on 15.9% higher revenues.
Earnings for the Industrial sector are set to grow 23.9% from the same period last year on 12.3% higher revenues. Firm business investment helped factories expand at a record pace. Manufacturers are also on a hiring spree and are paying more than other jobs.
Some analysts, in the meantime, are worried that investors will start to rotate out of the crowded tech sector this year and into other sectors that will benefit from the lower taxes. So far though, in spite of such uncertainty, the technology sector outperformed the broader S&P 500. In fact, Q1 earnings for the tech sector are poised to be up 20.7% from the same period last year on 11.4% higher revenues.
High profits are also expected from financial segments as well. Total Q1 earnings for the financial sector are projected to rise 19.1% from the same period last year on 4.5% higher revenues. Banks, insurers and asset managers are all expected to report double-digit growth mostly on heightened volatility and higher interest rates (read more: Banks Set for Blockbuster Q1 Earnings: 5 Top Picks).
Buy These 6 Stocks for Stellar Earnings Growth
Republican tax cut and a very strong economic backdrop looks set to deliver another round of stellar earnings growth in Q1. This calls for investing in six companies from the aforesaid sectors, which are expected to report a significant uptick in Q1 earnings.
These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
These stocks, in the meanwhile, also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Oasis Midstream Partners LP (OMP - Free Report) provides crude oil, natural gas, and water-related midstream services in North America. The stock has a Zacks Rank #2 and a VGM Score of B. The company’s expected growth rate for the current year is 337.2%, way ahead of the industry’s gain of 6.5%. The company is expected to report earnings results for the quarter ending March on May 22. Oasis Midstream Partners has an Earnings ESP of +2.33%.
Oasis Midstream Partners LP Price and EPS Surprise
Arch Coal, Inc. (ARCH - Free Report) produces and sells thermal and metallurgical coal from surface and underground mines. The stock has a Zacks Rank #1 and a VGM Score of A. The company’s expected growth rate for the current year is 11.4%, compared with the industry’s gain of 9.7%. The company is expected to report earnings results for the quarter ending March on May 8. Arch Coal has an Earnings ESP of +4.51%.
Boise Cascade Company (BCC - Free Report) manufactures wood products and distributes building materials in the United States. The stock has a Zacks Rank #1 and a VGM Score of B. The company’s expected growth rate for the current year is 39.8%, ahead of the industry’s gain of 17.5%. The company is expected to report earnings results for the quarter ending March on May 2. Boise Cascade has an Earnings ESP of +9.7%.
Century Aluminum Company (CENX - Free Report) produces standard-grade and value-added primary aluminum in the United States. The stock has a Zacks Rank #1 and a VGM Score of B. The company’s expected growth rate for the current year is 313.9%, way higher than the industry’s gain of 19.4%. The company is expected to report earnings results for the quarter ending March on Apr 24. Century Aluminum has an Earnings ESP of +92.11%. You can see the complete list of today’s Zacks #1 Rank stocks here.
CACI International Inc (CACI - Free Report) provides information solutions and services in North America and internationally. The stock has a Zacks Rank #2 and a VGM Score of B. The company’s expected growth rate for the current year is 70.4%, ahead of the industry’s gain of 19.8%. The company is expected to report earnings results for the quarter ending March on May 2. CACI International has an Earnings ESP of +15.41%.
Triumph Bancorp, Inc. (TBK - Free Report) operates as a financial holding company for TBK Bank, SSB that provides banking and commercial finance products and services. The stock has a Zacks Rank #2 and a VGM Score of B. The company’s expected growth rate for the current year is 36.6%, compared with the industry’s gain of 29.8%. The company is expected to report earnings results for the quarter ending March on Apr 18. Triumph Bancorp has an Earnings ESP of +5.58%.
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