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B400 Companies Expected to Report Stronger 2Q Growth Than S&P 500

John A. PrestboJohn A. Prestbo

Second-quarter sales and earnings reports are expected to come on strong—despite some cynics’ assertion that the first quarter would be the high-water mark in year-over-year gains. And once again companies in the Barron’s 400 Index are predicted by securities analysts to out-grow those in the S&P 500 by considerable margins, as shown in the table below:

Median 2Q 2018 Estimate vs. Median 2Q 2017 Actual 
EPS Revenue
Barron’s 400 23.63% 10.34%
S&P 500 16.00% 6.24%

As the U.S. economy accelerated, analysts revised their second-quarter forecasts upward instead of lowering them as usual. Here, too, the Barron’s 400 is well ahead of the S&P 500:

Median Estimate Changes Over Past Six Months
EPS Revenue
Barron’s 400 8.66% 4.02%
S&P 500 2.00% 1.30%

Digging down to the sector level reveals the sole instance in which the S&P 500 is expected to do better than the Barron’s 400: per-share earnings in the energy sector. The forecasted outperformance is huge—more than 50 percentage points. But it can be almost entirely explained by the comparison of this year’s energy-sector recovery versus its severe drubbing a year ago. The price of crude oil at the end of June has shot up 61% from $46 a barrel last year to $74 this year. Note, however, that predicted top-line growth in energy is greater for the Barron’s 400. Here are all the sectors and their anticipated growth:

Median 2Q 2018 Estimate vs. Median 2Q 2017 Actual 
Earnings per Share Revenue
Barron’s 400 S&P 500 Barron’s 400 S&P 500
Consumer Discretionary 18.79% 13.59% 7.75% 6.08%
Consumer Staples 13.43% 9.81% 8.90% 4.39%
Energy 44.33% 99.14% 30.96% 24.62%
Financials 26.56% 20.54% 3.68% 2.10%
Health Care 19.92% 12.87% 11.85% 8.25%
Industrials 25.30% 19.89% 11.56% 7.41%
Materials 29.50% 23.23% 10.36% 8.77%
Technology 21.46% 18.48% 12.89% 7.33%
Telecommunications 24.75% 11.91% 3.95% 3.85%
Utilities 4.15% 4.04% 9.29% 1.43%

In stock-size, the Barron’s 400 is predicted to outshine the S&P 500 in both size segments the two indexes share. The Barron’s 400 lead is especially wide in large capitalization stocks. On top of these expected gains the Barron’s 400 adds significant growth in the mid-, small- and micro-cap segments. It is noteworthy that the smaller stocks are forecast to do well, with micro-caps expected to produce the first double-digit percentage gain in per-share profits in a long while. Here are the stock-size comparisons:

Median 2Q 2018 Estimate vs. Median 2Q 2017 Actual
Earnings per Share Revenue
Barron’s 400 S&P 500 Barron’s 400 S&P 500
Mega Cap (>$10 billion) 24.90% 16.62% 9.15% 6.34%
Large Cap ($3 bln-$10 bln) 25.46% 8.73% 11.20% 4.10%
Mid Cap ($1 bln-$3 bln) 18.62% N.A. 11.50% N.A.
Small Cap ($500m-$1 bln) 30.91% N.A. 9.67% N.A.
Micro Cap (< $500 mln) 17.02% N.A. 2.56% N.A.

There can be many a slip twixt the prediction and the posting, but all signs point toward impressive year-over-year growth. When more than 90% of the Barron’s 400 companies have reported, we’ll report on how the second quarter turned out.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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