Gone are the days when investors used to be happy with just earnings growth. Now, earnings improvement (no matter how big it is) seems inadequate for solid moves in the market. Today, it is the beat that initiates a stock price rally post earnings.
There are plenty of reasons behind this phenomenon. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend. Also, seasonal fluctuations come into play sometimes. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
So, it makes sense to look at the beat ratios of the S&P 500 companies in the Q1 reporting season. As per the Earnings Trends issued on May 9, 2018, as much as 88.8% of the S&P 500 members have already reported results. Of these, 77.7% beat on earnings in Q1 of 2018 while 75% surpassed revenue estimates, translating into a blended beat ratio of 62.8%.
Against this backdrop, investors must be interested in finding out the sectors that have solid blended beat ratios so far this season. Below we highlight those so that investors can decide on for their future plays.
Technology – SPDR S&P Internet ETF (XWEB - Free Report)
About 74.6% companies of the sector delivered a blended beat ratio of 85.1%. As many as 91.5% companies beat on both lines. In any case, the wind is in favor of technology investing right now, making XWEB a winning proposition.
The space fell flat in March and April thanks to the news of Facebook’s data debacle and lower smartphone demand globally. But a few upbeat earnings releases and guidance and the tailwind of the tax reform pushed it back to its highs again. XWEB has been up about 8.9% in the past one month (read: Why You Should Believe in Buffett & Bet on These Apple ETFs).
Auto – First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)
All companies have reported already and produced a blended beat ratio of 77.8%. Of this, revenue beat ratio is 100% while earnings beat ratio is 77.8% (read: Beat Ratios Upbeat in Auto Earnings: Time to Buy the ETF and Stocks?).
Industrials – US Infrastructure Development ETF (PAVE - Free Report)
As many as 91.7% companies of the sector have reported already and registered a blended beat ratio of 72.7%. There were 86.4% companies beating on earnings and 81.8% companies surpassing revenue estimates. PAVE was up 2.6% in the last one month (as of May 9, 2018).
Aerospace – SPDR S&P Aerospace & Defense ETF (XAR - Free Report)
All companies of the sector reported and delivered a blended beat ratio of 72.7%. Within this, 90.9% companies beat on earnings while 81.8% companies exceled on revenues (read: Can Aerospace & Defense ETFs Keep Soaring?).
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