Q4 2017 Earnings Preview
Similar sales and EPS growth expected in Q4 versus Q3 for the S&P 500 and most sectors. But, consistent upside EPS surprises over six years are likely to continue. Assuming normal beats (+3%), about 11-12% EPS growth expected, versus 9% in Q3.
Energy, Materials, Tech, and Retail have best sales/EPS growth estimates.
Jan/Q1 Market Seasonality
Typical January pause or weakness following strong prior year has been absent thus far. Tax reform is likely offsetting this historical pattern, p.6
Overall, Q1 is usually good following a strong prior year, but investors should note that the first quarter of the second year of a presidential cycle normally has muted returns.
2018 Outlook, YTD Performance/Current Trend
From 2010–2018, Energy and Materials have drastically underperformed versus their own longer-term averages and versus all other sectors. We think this has a good chance to change in 2018, especially given the positive earnings outlook for the two sectors and recent relative price improvement.
Our picks from the two sectors are FANG, CDEV, JAG, COG, NBLX, NEP, EXP, USCR.
All major indices are at 52-week and/or all-time highs. The Nasdaq has resumed outperformance. On a style basis, large growth has also resumed outperformance.
There has been a sharp increase in the number of actionable names on our U.S. Focus List in the first two weeks of 2018. Buyable names include ATVI, PYPL, NFLX, CDEV, RNG, VRTX, ZION, WAL, BABA.
U.S. Focus List Earnings
Financials will kick off earnings season next week (MS, SCHW, GPN). The heaviest earnings weeks are the second and third weeks in February.
Especially favorable companies on our list are those that expect sales/EPS growth acceleration. These include NFLX, EXP, SIVB, ILMN, AMZN, TYL, GRUB, NBLX, AMAT, PRAH, COG, RP, USCR, AVGO, RHT, JAG.
