I regularly advocate that monitoring estimate-revision trends is a great way to forecast the next move in the overall market, and to find what are likely to be the best-performing stocks. The "system," as it were, also works at the group level, and I regularly use it to tease out which sectors that have the best earnings momentum, and are poised to outperform the overall market. (Why didn't I mention this sooner?)
In our never-ending quest to help you make money, let's take dissect the sectors and see where the best momentum is. Keep in mind that I don't look simply at estimate movements in isolation. In a robust economy, for example, all estimates will tend to go up. So we need to go one level deeper, and see which groups have the strongest estimate-revision trends relative to the market as a whole.
The table below summarizes how the S&P 500 looks now. The revision "rank" is the weighted average of the decile scores of the names in the group. In other words, in any particular sector, we take a measure of the revision trend of each name, and then rank those names against the S&P 500. The best upward trends are in the top decile, or ranked "1," while the worst are in the bottom decile, ranked "10," et cetera. The average for the group gives us a feel for how good it looks as a whole. "5" is average, which is uninteresting to me.
We also throw in the price-to-earnings ratios for the group, in order to help discern where the momentum is recognized and where it is undiscovered.
It's not surprising that the earnings momentum in electronic technology (which is mainly hardware) is quite good -- and the P/E multiple is still below market! As I noted earlier this week, Apple (AAPL) is most certainly influencing the score, so if you are going to play this via ETF, make sure the fund owns Apple. The top five names in this sector, by size, are Apple, Intel (INTC), Qualcomm (QCOM), Cisco (CSCO) and EMC (EMC). All rank quite well on earnings revisions, and only Qualcomm is "expensive" at 17x earnings.
The second-strongest group is commercial services, encompassing a grab bag of such names as McGraw-Hill (MHP), Moody's (MCO) and Equifax (EFX). This group is a small weight in the S&P 500, and there probably aren't any ETFs to play it, so you would have to buy a basket in order to get exposure to the sector.
On the negative side, the estimates for non-energy minerals (e.g. metals and mining) and communications look horrific. Simple advice: Avoid those groups. The only time I'd touch telecom would in my dividend-capture activity, as the yields are good. But, honestly, the stocks have been trading poorly, and even the div-capture trades have not been that fruitful in this group lately.