Explore Our
“Off The Wall” Blog

Unique, straight-forward, unfiltered opinion on topics of concern for individuals with newfound wealth.

Making the Most of Earnings Season

U.S. News and World Report Smarter Investor

There’s good reason to be cautious.

Earnings season is when analysts generally start to increase earnings expectations, as a majority of companies tend to beat consensus estimates. As dangerous as it is to say “this time it’s different,” I am going to say it: “This time it’s different.”

While corporate profits have been a driving force behind the latest bull market that began in 2009, the three-year run of seemingly uninterrupted increased earnings may be coming to an end. What’s different now is that there has been a significant increase in the number of corporations reporting earnings below their estimates.

According to Thompson Reuters Research, as of February 10, of the 352 companies in the S&P 500 that have reported earnings for the fourth quarter of 2011, 63 percent reported earnings above analyst expectations, 11 percent reported earnings in line with expectations, and 26 percent reported earnings below estimates. This compares to a historical average (since 1994) of 62 percent beating estimates, 18 percent matching estimates, and 20 percent missing estimates. Over the last four quarters, it has been 70 percent beating, 10 percent matching, and 20 percent missing estimates. The increase in the number of companies reporting below-consensus estimates is worth paying close attention to.

With the indexes closing in on 52-week highs, it’s a good time to consider decreasing your portfolio’s exposure to sectors that may be missing their estimates and increasing exposure to sectors where estimates continue to rise. According to Bespoke Investment Group, of the ten sectors that make up the S&P 500, seven sectors had net revisions ratios decline and three sectors had increases. Those three are Industrials, materials, and consumer discretionary. The worst-performing sectors were utilities, telecom services, and energy.

It’s also important to note that the earnings increases over the past few years have largely been sustained without the assistance of significant revenue increases. If we look at the 346 companies in the S&P 500 Index that have already reported earnings, 55 percent reported revenues above expectations and 45 percent reported revenues below expectations. The energy sector is expected to have the highest revenue growth for 2012, with financials expected to post the lowest.

Pre-announcements are always worth watching. This is when companies attempt to let investors know what to expect before the quarter is over. The number of companies that have issued negative earnings per share pre-announcements for the first quarter of 2012 is also above historical averages.

I believe that earnings will continue to increase for 2012, but to a lesser extent than they have over the past few years. As the economy continues to gain strength, it makes sense to consider staying invested in sectors that show the highest percentage increase in earnings and to look for companies with increasing revenues.

Timothy S. MicKey, CFP®, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer and Registered Investment Advisor, member FINRA/SIPC. Monument Wealth Management has been featured in several national media sources over the past several years. Follow Tim and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth and @TimothySMickey, and on their Facebook page. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate, please consult your financial advisor prior to investing. All performance references are historical and are not a guarantee of future results.

Read the article on U.S. News & World Report here! >>


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

A copy of the Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Stay up to date!

Subscribe to our “Off the Wall” Blog for articles and videos on all things wealth management, by all members of our Team. Unlike Facebook, we will never share your data with anyone.