What are we looking for?
The sectors with the strongest earnings momentum in Canada.
More about today's screen
This is a repeat of a screen we've done before using StarMine, a Thomson Reuters service that gathers earnings estimate data from analysts. StarMine measures earnings-revision momentum, which is how much earnings estimates have risen or fallen over time. We're looking at earnings estimate revisions over the past 30 and 60 days for the next quarter, next 12 months and two years out.
The thinking here is that investors will follow profits so the sectors with the strongest earnings-revision momentum should continue to do well. We'll sort by sectors with the strongest earnings revisions made over the past two months for the upcoming quarter. We'll accept only mid- and large-capitalization Canadian companies in the screen.[-dotted-rule-]
What did we find out?
The oil sector has had the best momentum as earnings estimates for the next quarter having risen 17 per cent in the past two months.
The last column is also a good sign for the sector, as it shows the "SmartEstimate" for the next 12 months. The SmartEstimate takes into account only analysts who have the most timely and accurate earnings estimate history. In other words, the SmartEstimate puts the most weight on the most accurate analysts. The SmartEstimate for the oil sector shows an expected 30-per-cent growth in earnings for the next year.
The earnings-revision momentum hasn't translated its success for the stocks recently, however, as the recent slide in oil prices has also dragged the stocks lower.
Analysts have probably not adjusted their earnings estimates to account for the most recent volatility in oil. If you're bullish on oil, as UBS Wealth Management is, this might be a good opportunity on the sector.
"We view the 12-per-cent price drop in West Texas Intermediate over the last few days as excessive," said UBS analysts Dominic Schnider and Giovanni Staunovo in a research note Tuesday. Despite recent global economic indicators suggesting a slowdown in commodities demand, the analysts believe that global demand for oil, especially from China, will remain robust.
"With crude oil demand growth not showing signs of flipping into negative territory and supply constraints prevailing, we expect WTI to move toward $120 (U.S.) a barrel [again]"