Gavekal Capital: Fewer Stocks Are Experiencing Positive Revisions in North America

Friday, August 15, 2014

Fewer Stocks Are Experiencing Positive Revisions in North America

Over the past several years an interesting pattern has emerged in North America regarding sales and EPS revisions. During the first half of the year, analysts broadly raise sales and EPS estimates as the consensus outlook of the economy becomes increasingly more optimistic. However, as growth fails to meet expectations and second half of the year growth expectations are brought back to reality, the number of stocks with increasing EPS and sales revisions declines significantly.

In the chart below we show three data points. The dark blue line is the percent of stocks in the MSCI North America that have seen their sales estimate revised upward versus six months ago. The red line is consensus economics year-over-year real GDP growth estimate for the calendar year for the United States. The light blue line is the actual year-over-year change in real GDP for the United States.


There have only been a handful of quarters over the past seven years where the (revised) real GDP growth surpassed the expected GDP growth. This happened most notably in the 4Q 2013. we would say looking at the previous chart of sales estimates and the next chart of EPS estimates, it is safe to assume that the number of stocks with positive revisions will be declining significantly over the next 6-8 weeks.