Investors Shift Focus To Earnings And Sales Estimates

About one month ago, we noted how investors were favoring high P/E stocks. Over the past month, focus has shifted to changes in earnings and sales estimates. Over the past month, the three factors (out of 30) that have had the highest correlation to the returns of GKCI DM Index are 1-month change in EPS estimates, 3-month change in EPS estimates, and 1-month change in sales estimates. The factor that has had the fourth highest correlation to returns is also related to earnings as well. Stocks that have had higher EPS growth rates have been performing better over the past month.

Going back to our top 3 factors over the past month, the decile of stocks with the highest 1-month change in EPS estimates are up 2.8% while the decile of stocks with the lowest 1-month change in EPS estimates are down 5.7%. Similarly, the decile of stocks with the highest 3-month change in EPS estimates are up 1.6% while the decile of stocks with the lowest 3-month change in EPS estimates are down 3.6%. In the tables below we show each returns for each of the four factors, broken out into deciles, and in the larger table we show the correlation between the market and all 30 factors.

1-Month Change in EPS Estimate

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

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3-Month Change in EPS Estimate

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1-Month Change in Sales Estimate

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EPS Growth

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All 30 Factors

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