With earnings season right around the corner, investors may want to perform some spring cleaning on their portfolios.
Stocks began the year with a bang. After more than five years of waiting, the S&P 500 broke its all-time nominal closing high of 1,565.15. The index surged 10 percent in the first three months to post one of its best first quarters in history. However, it will be extremely difficult for stocks to keep up the pace as the year unfolds, especially as companies issue negative guidance.
As the first quarter came to a close, more than 80 companies in the S&P 500 provided negative guidance for the period. In comparison, only 24 issued positive guidance. This is the highest ratio of negative-to-positive guidance on record, according to Factset.
Over the past six quarters, the ratio has stayed between 2.20 and 2.89. As the chart above shows, this range is now easily broken with a ratio of 3.55 for the first quarter. Although the markets do not appear to be worried about the negative guidance, investors may want to reposition their portfolios ahead of any spring-time volatility.
Adam Parker, Morgan Stanley’s Managing Director and Chief U.S. Equity Strategist, recently highlighted how the ten largest earnings beats in the fourth quarter contributed over 90 percent of the S&P 500 upside in aggregate earnings. Past performance is certainly no guarantee of future results, but investors may find these top companies as a good place to hide during earnings season…
International Business Machines (NYSE:IBM): $214.36
The Warren Buffett-endorsed computer giant is currently the fifth biggest contributor to the S&P 500’s upside in earnings. In the previous quarter, IBM beat expectations by 14 cents per share. In the past eight quarters, it has topped estimates seven times, with the one exception coming inline with estimates.
The Travelers Companies (NYSE:TRV): $84.41
The New York-based company is a leader provider of property casualty insurance for auto, home, and business. It is also the fourth largest contributor to the S&P 500’s upside in earnings. However, the results has been hit or miss. Over the past eight quarters, it has missed and topped estimates four times each.
Apple (NASDAQ:AAPL): $429.79
The world’s largest publicly traded tech company was the third biggest contributor to the S&P 500’s upside in the fourth quarter.
In the previous quarter, Apple reported its largest profit in company history. In fact, ExxonMobil is the only company to post a larger quarterly profit. However, the stock remains in a downtrend.
Microsoft (NASDAQ:MSFT): $28.80
While Apple and Google attract the most attention among tech names, Microsoft was the second biggest contributor to the S&P 500’s upside in the fourth quarter. In the past eight quarters, it has exceeded expectations six times.
JPMorgan Chase (NYSE:JPM): $48.28
America’s largest bank by assets recently suffered a London Whale incident that cost billions, but it was the biggest contributor to the S&P 500’s upside in the fourth quarter. In the past eight quarters, it has topped estimates seven times, with the one exception coming inline with estimates.
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