Tags: Earnings | estimate | stocks | consumer

Lowered Earnings Estimates Warn of Tough Stock Market

By    |   Wednesday, 08 April 2015 08:37 AM

Based on trends in earnings estimates, we are entering a stock pickers' market.

When earnings are growing rapidly, almost all stocks should go up and stock picking isn't necessarily the most important part of success. Unfortunately earnings estimates are being lowered and that means stock selection is likely to be the key to success in the stock market for the next few quarters.

For the companies in the S&P 500, analysts at Standard and Poor's have lowered their outlook for 2015. Earnings estimates for 2015 have been cut by 14 percent compared with a year ago. For the second quarter, earnings are expected to show year-over-year growth of 0.4 percent and analysts expect a decline of more than 1 percent in the third quarter.

Based on estimated earnings, it's fair to expect the index to struggle. Individual stocks could significantly outperform the index if their earnings beat expectations. Companies that miss estimates should be expected to decline sharply.

Looking at sectors, consumer discretionary stocks and industrials appear to be the most undervalued based on expected earnings. Energy and utility stocks are the most overvalued.

Investors should consider buying stocks in undervalued sectors and avoiding overvalued sectors now. It could be tempting to bottom fish for energy stocks but there is a high amount of risk in their earnings estimates and investors should be very cautious in buying this sector. The same is true for utilities.

Boring consumer discretionary stocks and industrials could be the best trades in the current market environment.

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MichaelCarr
Based on trends in earnings estimates, we are entering a stock pickers' market.
Earnings, estimate, stocks, consumer
251
2015-37-08
Wednesday, 08 April 2015 08:37 AM
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