By Wallace Witkowski, MarketWatch
SAN FRANCISCO (MarketWatch) -- Third-quarter earnings season
ramps up this week, and based on some initial metrics, tech,
financials, and health care companies are investor favorites, while
consumer staples and consumer discretionary stocks are being
snubbed.
Earnings season will begin ramping up this week with Alcoa Inc.
(AA) reporting on Wednesday.
The Dow Jones Industrial Average (DJI) , the S&P 500 Index
(SPX) , and the Nasdaq Composite Index (RIXF) all finished the week
lower even after Friday's strong rebound.
Who do the strategists like?
In a recent note, Birinyi Associates rounded up the sector
weightings of nine major banks including Goldman Sachs , J.P.
Morgan Chase & Co., and Morgan Stanley. All nine were unanimous
in having overweight designations for the tech sector, which also
carries the heaviest weight on the S&P 500 at more than $4
trillion in market cap.
None of the banks had telecom or consumer staples as overweight,
and consumer staples had the distinction of being the least liked
sector receiving the most underweight designations at 7.
The materials sector falls somewhere in the middle this season.
Compared with other sectors, better-than-average earnings growth is
expected the from materials sector and the number of positive
versus negative outlooks is roughly split between companies. Market
strategists are split on how to view the sector with J.P Morgan and
Morgan Stanley overweighting the sector and Citigroup and Deutsche
Bank underweighting it.
S&P 500 sectors ranked ahead of third-quarter earnings
reports
(1= best/greatest, 10 = worst/least), source: FactSet, Birinyi
Associates
Sector S&P 500 sector market cap weight Favored by strategist weightings Expected Q3 earnings growth from year ago Tendency of positive earnings outlooks
Tech 1 1 9 4
Financials 2 2 4 3
Health Care 3 4 3 6
Consumer Disc. 4 7 10 7
Consumer Staples 5 10 8 10
Industrials 6 3 5 5
Energy 7 5 6 1
Materials 8 6 2 2
Utilities 9 8 7 9
Telecom 10 9 1 8
Healthcare companies are well-positioned going into the season.
Even with stock prices in the sector seeing the biggest gains in
2014, the sector still ranks fairly high with strategists and
earnings growth is seen coming in better than most other sectors
this season.
Individual company analysts are also bullish on the sector with
59% of ratings on healthcare companies being a buy, according to
John Butters, senior earnings analyst at FactSet. That's the
highest buy-rating percentage for individual companies among all
the sectors.
In addition to Alcoa, other notable companies reporting this
week include Yum Brands Inc. (YUM) on Tuesday; Monsanto Co. (MON)
and Costco Wholesale Corp. (COST) on Wednesday; and PepsiCo Inc.
(PEP) on Thursday.
Next week, reports will kick into high gear with the bulk of
earnings coming out of the financials sector starting with J.P
Morgan (JPM) , Citigroup Inc. (C) , and Wells Fargo & Co. (WFC)
reporting Oct. 14.
"JPMorgan Chase is a significant driver of growth (due to an
easy comparison to year-ago loss due to a charge) and Bank of
America is a significant drag on growth (due to the DOJ
settlement)," said Butters in emailed comments.
"If either/both of those companies report significant upside or
downside earnings surprises, it will have a major impact on the
growth rate for Financials," Butters said.
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