Top Energy And Telecom Buys For Record Q1 Estimate Increases

Stock SectorMay 6, 201812min3
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LOS ANGELES, CA – FEBRUARY 17: A general view of atmosphere at the Verizon Up Members Lounge during the 2018 NBA All-Star Weekend on February 17, 2018 in Los Angeles, California. (Photo by Christopher Polk/Getty Images for Verizon)

The first quarter of 2018 marked a record increase in earnings estimates by Wall Street analysts. In fact, according to Factset, it was the largest increase in the bottom-up EPS estimate during a quarter since they began tracking the quarterly bottom-up EPS estimate in Q2 2002. Factset data over the past 60 quarters exhibits EPS estimates for Q1 are usually in the negative domain, with an average decline of 4.1%. The first quarter of 2018 was a serious break from this trend, largely due to the tax law changes that brought billions back into the U.S. The overall Q1 bottom-up EPS estimate increased by 5.4% and the two sectors with the strongest analysts increases were energy (14.6%) and telecom (14.1%).

The turbulence and market correction in Q1 and beyond has everyone looking outside the box for some alpha. Our strategy for capitalizing on abnormal EPS estimate trends leads us to the sectors with the largest upward revisions. Factset recently highlighted that EPS revisions for the S&amp;P 500 saw a record increase for Q1. Telecom and energy led the market in Q1 bottom-up EPS estimates. There have been a number of factors driving earnings for the telecom sector such as increased demand for wireless, demand for fiber optic connectivity, and overall economic growth. The energy sector is benefiting from stronger economic growth, but it is worth mentioning that earnings estimates were unusually low a year ago and analysts are revising up this year. We took the top CressCap buy recommendations for the strong-performing energy and telecom sectors and refined them based on strong EPS revision grades.

CressCap Investment Research

Expand to see how our directional recommendations are computed: CressCap uses a multi-factor model to select the best-performing stocks. Our data is updated daily and the academic grades (A – F) for each financial metric are scored and ranked on a regional/sector relative basis. The foundation of our recommendations is to identify companies that possess the collective investment style of Value, Growth, EPS Revisions, Profitability and LT Momentum. Academic grades of C or better indicate that each metric scores well compared to the peer sector.

Energen Corporation – Energy

Our first pick for EPS estimate beneficiaries is the Energen Corporation. Energen focuses on oil exploration and production in the Permian Basin and other reserves throughout the U.S.. CressCap’s computer driven analysis grades Energen’s EPS revisions an A, on a sector relative basis. Market turbulence caused the stock price to decline, but it is trending back up now. The company has all A+ grades for momentum in the short, medium and long-term, with long-term price increasing 66.39% while the sector had an average price decrease of 3.05%. The recent acquisition of RSP Permian by Concho Resources began a M&amp;A race in the Permian Basin. Energen is performing among the best in the sector, and the stock has solid fundamentals. While past performance does not always mean future performance, we anticipate this will favor the company in the medium to long term.

Verizon Communications Inc. – Communications

There’s no harm in picking well known stocks like Verizon. In the case of VZ, its position in the public consciousness is well deserved. Verizon is ranked number 2 in the telecom sector and its EPS revisions reflect the Q1 trend. The telecom giant owns brands including Yahoo! and Tumblr, and has a total reach of over a billion people. Verizon’s EPS revisions are strong and are accompanied by the company’s impressive profitability. According to the most recent earnings report, Q4 2017 exhibited a huge jump year over year. Earnings of $4.57 were up from just $1.10 in Q4 of 2016. Verizon’s 2yr historic EPS growth was graded B, a 68.42% growth relative to a sector change of -47.76. ROE and ROI are both A+ grades by CressCap, and the former is a staggering 91.74% in a sector with an average of 4.61%.

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LOS ANGELES, CA – FEBRUARY 17: A general view of atmosphere at the Verizon Up Members Lounge during the 2018 NBA All-Star Weekend on February 17, 2018 in Los Angeles, California. (Photo by Christopher Polk/Getty Images for Verizon)

The first quarter of 2018 marked a record increase in earnings estimates by Wall Street analysts. In fact, according to Factset, it was the largest increase in the bottom-up EPS estimate during a quarter since they began tracking the quarterly bottom-up EPS estimate in Q2 2002. Factset data over the past 60 quarters exhibits EPS estimates for Q1 are usually in the negative domain, with an average decline of 4.1%. The first quarter of 2018 was a serious break from this trend, largely due to the tax law changes that brought billions back into the U.S. The overall Q1 bottom-up EPS estimate increased by 5.4% and the two sectors with the strongest analysts increases were energy (14.6%) and telecom (14.1%).

The turbulence and market correction in Q1 and beyond has everyone looking outside the box for some alpha. Our strategy for capitalizing on abnormal EPS estimate trends leads us to the sectors with the largest upward revisions. Factset recently highlighted that EPS revisions for the S&P 500 saw a record increase for Q1. Telecom and energy led the market in Q1 bottom-up EPS estimates. There have been a number of factors driving earnings for the telecom sector such as increased demand for wireless, demand for fiber optic connectivity, and overall economic growth. The energy sector is benefiting from stronger economic growth, but it is worth mentioning that earnings estimates were unusually low a year ago and analysts are revising up this year. We took the top CressCap buy recommendations for the strong-performing energy and telecom sectors and refined them based on strong EPS revision grades.

CressCap Investment Research

Expand to see how our directional recommendations are computed: CressCap uses a multi-factor model to select the best-performing stocks. Our data is updated daily and the academic grades (A – F) for each financial metric are scored and ranked on a regional/sector relative basis. The foundation of our recommendations is to identify companies that possess the collective investment style of Value, Growth, EPS Revisions, Profitability and LT Momentum. Academic grades of C or better indicate that each metric scores well compared to the peer sector.

Energen Corporation – Energy

Our first pick for EPS estimate beneficiaries is the Energen Corporation. Energen focuses on oil exploration and production in the Permian Basin and other reserves throughout the U.S.. CressCap’s computer driven analysis grades Energen’s EPS revisions an A, on a sector relative basis. Market turbulence caused the stock price to decline, but it is trending back up now. The company has all A+ grades for momentum in the short, medium and long-term, with long-term price increasing 66.39% while the sector had an average price decrease of 3.05%. The recent acquisition of RSP Permian by Concho Resources began a M&A race in the Permian Basin. Energen is performing among the best in the sector, and the stock has solid fundamentals. While past performance does not always mean future performance, we anticipate this will favor the company in the medium to long term.

Verizon Communications Inc. – Communications

There’s no harm in picking well known stocks like Verizon. In the case of VZ, its position in the public consciousness is well deserved. Verizon is ranked number 2 in the telecom sector and its EPS revisions reflect the Q1 trend. The telecom giant owns brands including Yahoo! and Tumblr, and has a total reach of over a billion people. Verizon’s EPS revisions are strong and are accompanied by the company’s impressive profitability. According to the most recent earnings report, Q4 2017 exhibited a huge jump year over year. Earnings of $4.57 were up from just $1.10 in Q4 of 2016. Verizon’s 2yr historic EPS growth was graded B, a 68.42% growth relative to a sector change of -47.76. ROE and ROI are both A+ grades by CressCap, and the former is a staggering 91.74% in a sector with an average of 4.61%.

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