Forget the New York Times Best Seller list: Earnings call transcripts may just end up being the summer page-turner you can’t put down at the beach.
Earnings season is always an important time of the year. While most seasons have some sort of theme or trend, from falling oil prices to the impact of a new tax bill, this upcoming second quarter (Q2) earnings season’s theme will be all about trade—and whether the current trade war tensions have impacted company cash flows and management guidance.
In preparation for any Q2 earnings fireworks, we dug into the data to reveal some trade-related opportunities based on the latest information reported by the company.1
The theory is that a stronger dollar over the past year and the potential for global supply chain disruption should continue benefiting domestically oriented areas of the market. This has been the most recent trend within the S&P 500® at the single-stock level. In a follow-up post, I’ll take this a step further and show why one shouldn’t throw the baby out with the bath water just because a sector has high revenue from overseas.
Made in the USA has been more than OK lately
To level-set the analysis, we examined these trends for all S&P 500 stocks. We partitioned out stocks by whether they generate more or less than 50% of their revenue from outside the US. We then calculated the median stock’s relevant growth or performance statistic for each revenue bucket. Medians were preferable to averages, as both positive and negative outliers—such as ultra-high and ultra-low growth rates—can distort averages.
The data revealed that there are stronger growth and performance trends for more domestically oriented, low foreign revenue firms. Not only did those domestic firms register higher growth rates in Q1, but Q2 sentiment (Q2 earnings per share (EPS) growth estimate revisions) and growth forecasts are higher. And the market has taken note. Low foreign revenue firms have outperformed higher foreign revenue firms and the broader market in Q2, as well as since early May when the trade tension heat was turned up.