2024-06-19 03:57:41 ET
Summary
- Positioning for sector and factor rotations with upcoming second quarter earnings is critical.
- The industrials sector offers a challenging price/value calculus, benchmarking earnings growth vs. sector weightings.
- Greenbrier Companies shows potential for growth, with a valuation range of $65-$75 per share by FY’26E.
Investment Summary
Now we are halfway through the year, it is imperative to position for sector and factor rotations amid the upcoming slew of second-quarter earnings. Around 1 month ago, I constructed a composite made up of 1) the current S&P 500 Index sector weightings, versus 2) the projected next 12 months' earnings growth of each sector. As you can see in Figure 1, the industrials sector looks to offer the least compelling price/value calculus based on this. The basic materials, real estate, utilities and energy sectors, on the other hand, appear to offer a more attractive equation.
As a result, one might be drawn immediately to names in the left half of the chart. On the other hand, I would argue there is potential value in contrarian plays in the industrial sector presenting (i) highly attractive economic characteristics, (ii) durable earnings profiles, and (iii) the ability to reinvest surplus free cash flows at an advantage moving forward....
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For further details see:
Greenbrier Companies: Strong Re-Rating Potential, Margin Growth, Economic Profit