Top 10 S&P 500 Stocks: How Does Forward Earnings Growth Look?

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Includes: AAPL, AMZN, AXP, BAC, BRK.A, BRK.B, C, CME, FB, GOOG, GOOGL, GS, JNJ, JPM, MSFT, SCHW, USB, WFC, XOM
by: Brian Gilmartin, CFA
Summary

The average for the Top 10 stocks by market cap in the S&P 500 is expected to grow 8% in the coming year.

Small and mid-cap underperformance for the last few years might be starting to change.

It's unlikely that the Top 10 client holdings will change much in 2019, but it pays to add an "equal-weight" or small-cap "tilt" to the portfolios.

If readers can get on your cheaters and look at the attached spreadsheet, you'll see the expected 2019 EPS growth for both the top 10 weights in the S&P 500 and the Top 10 Financial stocks in the S&P 500.

All but Apple (AAPL) and Exxon (XOM) and are expected to show positive EPS growth in 2019, with the average for the Top 10 stocks by market cap in the S&P 500 expected to grow 8% in the coming year. If you remove Apple and Exxon's drag on the Top 10, the expected growth is still 9%.

Financial sector revisions show that since September 30, 2018, the top 10 Financial weights have shown negative revisions, which is pretty understandable given the 4th quarter's market action. However, if you look at the absolute "expected growth" for 2019, the Financial sector is expected to show EPS growth of 9% for the Top 10 names, with only Goldman Sachs (GS) expected to show negative growth this year.

Summary / conclusion: Microsoft (MSFT) remains clients' #1 position within accounts, which has been the case since ValueAct took the 1% stake in April 2013. (It's better to be born lucky than smart.) Schwab (SCHW), Amazon (AMZN), JPMorgan (JPM) and a few others round out the Top 10 positions for clients. Obviously, looking at the above spreadsheet, Microsoft and Amazon are showing the highest "expected" EPS growth for 2019 per the numbers.

However, the fastest runner doesn't always win the race.

The small and mid-cap underperformance for the last few years might be starting to change, as this blog wrote about this weekend.

Norm Conley of JAG Capital, a long-time friend from TheStreet years ago, wrote this today as well, possibly supporting the idea that maybe large-caps lag in here for a while and we get a year where small-caps and mid-cap value generate better returns than the large-cap space.

True, the fastest runner doesn't always win the race, but the old saying goes it's a good way to bet.

It's unlikely that the Top 10 client holdings will change much in 2019, but it pays to add an "equal-weight" or small-cap "tilt" to the portfolios.

Thanks for reading.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.