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How to Invest for the 2019 Earnings Growth Slowdown

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  • (1:00) - What Should We Expect From Q2 Earnings Season?
  • (6:20) - Are We On The Verge Of A Earnings Recession?
  • (10:15) - Is The Tech Sector Leading The Downturn?
  • (15:30) - Will The Finance Sector Come Out Positive In Q2 Earnings?
  • (17:00) - S&P Small Cap 600 Index: How Will The Small Caps Perform?
  • (20:15) - "What" Stocks Should Investors Be Watching?
  • (24:25) - Episode Roundup: MU, AAPL, ADBE, ORCL, MCD, MSFT, GS, SPY, SLY


Welcome to Episode #184 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

This week she’s joined by Zacks Director of Research, Sheraz Mian, to discuss what is going on with the earnings outlook for the second quarter and the full year.

After a fantastic earnings year in 2018, where S&P 500 (SPY - Free Report) earnings grew an astounding 23.3% thanks to the corporate tax cuts, earnings are currently expected to rise just 0.9% on the year.

And the second quarter is expected to be the weakest of the year with earnings forecast to decline 2.9% after falling 0.2% in Q1.

Additionally, the small-cap S&P 600 index is also expected to have a tough second quarter, with earnings forecast to fall 8.8%.

Is the earnings weakness signaling something “bad” like a recession possibly being on the horizon?

Or is it a red herring?

Technology to Blame?

The technology sector is one of the largest sectors in the S&P 500, with 22.6% of the index’s total earnings.

Thanks to the semiconductors, which have seen their earnings estimates cut in half the last two quarters, and Apple (AAPL - Free Report) , which is expected to see a fiscal 2019 earnings decline of 3.7%, the technology sector is now weighing on the entire index.

For the second quarter, earnings in the group are expected to decline 10.6% while revenue jumps 2.4%.

Earnings aren’t expected to get back into the positive in the tech group until the first quarter of 2020.

How can investors protect themselves during this earnings softness?

Look for Large Caps with Strong Businesses

1.       Adobe (ADBE - Free Report) isn’t expected to see the technology earnings growth slowdown. Earnings are forecast to rise 15.5% in fiscal 2019 and another 24% in fiscal 2020. Revenues are still expected to grow by the double digits this year and next. It’s not cheap, with a forward P/E of 38, but investors are paying for that strong growth.

2.       Oracle (ORCL - Free Report) is one of the “old” tech names which is growing revenue at just single digits but it’s cheap with a forward P/E of only 14.9. It, too, is expected to see solid earnings growth this fiscal year of 11%. It pays a dividend currently yielding 1.7%.

3.       Microsoft (MSFT - Free Report) is still putting together double-digit earnings growth despite being one of the old kids on the block. Earnings are expected to rise 18% this fiscal year and 11% next fiscal year for the tech giant. It also pays a dividend, currently yielding 1.4%.

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