Energy's Loss Is the Financials' Gain

Just as the stocks in the financial sector have stabilized while energy stocks have been weak, analyst sentiment on the sectors seem to be following a similar trend.  In the charts below, we track the percentage of stocks in each sector that have seen positive or negative estimate revisions over a rolling one-month period. 

As shown in the shaded areas, estimate revisions for both the energy and financial sectors have had sharp reversals.  In mid-July, nearly 55% of stocks in the financial sector had seen their numbers cut in the prior month.  Today, the percentage has decreased to only 25%.  In the energy sector, in mid-July analysts had raised estimates on nearly 75% of the stocks in the index over the prior four weeks.  Currently, nearly 25% of the stocks in the sector have seen their numbers cut over the last four weeks.

click to enlarge

Comments

[yank:]

I'm not buying it. First of all, you are making a big assumption that analysts are accurate with their estimates. As pointed out in a WSJ article this week the accuracy of analyst estimates has now reached a 20 year low. In short, these guys don't know a helluva lot about what energy stocks (or financials for that matter) will earn next quarter or next year. To tout Financials at this point is really trying to put "lipstick" on a pig. Please don't insult the pig. Financials are a death trap right now.

2008 Aug 29 02:23 PM

[redbaron:]

I'm with Yank. Short financials, long energy.

2008 Aug 30 08:47 AM

[surgcare:]

I hate to keep saying these people are idiots ,but its the only way to describe the author . The financials are losing billions and the energy companies are making billions . What the hell does estimates have to do with anything .

2008 Aug 30 10:43 AM

[NOWHEREMAN:]

I doubt very many analysts have factored $100 oil into earnings estimates. The last I heard 80 was the norm for earnings predictions. Meanwhile, the Financials have yet to bite the Bullet on the Mark to Market accounting rule by diverting more and more of their Level 2 assets to Level 3. (Mark according to Formula VS Mark to Fantasy)

Beware of "dead cat bounces" and "falling knives". Instead of wishful Charting do a 5 year chart of the BKX and compare it to XOM for the same period.

I see a "waterfall" to oblivion and a staircase. Guess which one I am willing to put my money into?

If you extend BKX and use a 10 year chart, you will also notice that the Banking Sector has broken through ALL levels of support.

Stockmarkets are heralded as a sure play using a 50 year horizon. Push comes to shove, gold is the only sure play. Thousands of stocks have gone belly up during that span, only the Indexes are around. Meanwhile, Gold would still exist and have value.

This is the 3rd Federal Reserve in our Nation's history. It won't be the last.

2008 Aug 30 02:22 PM

[CLH:]

Most people should understand this or not invest at all. When stocks are high priced---SELL. When stocks are cheap--BUY.

2008 Aug 31 07:47 AM

[NOWHEREMAN:]

The current problem with the Financials is that more "shoes" are expected to crop up. Until the Books are transparent, what some consider cheap may turn out to be expensive. Take the investment in Countrywide at $18 and Lehman at $28, they were considered to be cheap at those prices. Thornburg was the Cleanest of the bunch, strictly Prime mortgages, Washington Mutual, FifthThird, IndyMac, etc., all and sundry were considered cheap relative to their 52 week highs.

I don't know what their book values are currently and No analyst knows either. I'd rather stand aside from the whole sector.

However, if you are a trader, the volatility of the sector is undeniable. Short Squeeze, Dead Cat Bounce from very oversold conditions can/do lead to enormous profits. Just don't expect them to hold.

2008 Sep 01 06:55 PM

[Kunst:]

Thanks, CLH, that makes everything clear and easy.

2008 Sep 02 12:46 AM