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Sectors to Avoid This Earnings Season

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    Investorplace.com Senior Editor Jeff Reeves on the sectors investors should consider avoiding.

  • Duration 5:04
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Earnings season is underway and estimates for the quarter little bleak although some companies that have reported -- beat estimates.

According to FactSet S&P earnings growth rate is estimated to be around 2.4 percent.

That's down from nine point 2% estimates in September.

And while the overall outlook is -- for some sectors it's even dimmer here with three sectors you have to avoid this earnings season.

Is Jeff -- she's the editor of investor place dot com and we -- Put in a proviso that you may be wrong so maybe these sectors will take off but this is this is your feel now health care is one of those sectors.

You say we should watch out for I would have thought that with all the -- -- mandates that.

Some of these their earnings or walk to end that that they would do well but you say no way.

Yeah and to declare I mean we're talking about their action for the analyst vastness is not to say that some of these companies.

Aren't so gonna grow but they're gonna grow less than some expected and what what are if the -- -- mandates are locked in that why would health -- is a sector do poorly.

Well and in regress the Affordable Care Act anyone specific.

Area that I'm watching as pharmaceuticals are seeing a little bit ahead of me to the pharmaceuticals is a big generic company.

It's moved down -- sustenance for analysts Madonna's house and it's because.

There's fear that it's an easy target it's -- of put a cap on prescription drug costs and fifty indicate command a higher price for a product that is natural against the last money.

So I mean there's there's value and that -- let me just push you -- this more volume if we're adding millions of people to the insurance rolls and they will need.

The Lipitor is -- the generic Lipitor is why will that not then cover what they lose in margins perhaps.

Well -- I mean Lipitor is a pretty good example because I mean Pfizer has actually seen a lot of price pressure since Q3 -- -- gone off patent is a lot of complex issues here but I mean the bottom line is that a lot of these companies can't sell products for the margins that they used to discredit any more consumers the pipeline eventually.

But keep in mind we're talking about Q4 estimates right now we're a lot of -- affordable care stuff hasn't really come into effect in full force yet so.

I mean I -- -- pharmaceuticals because I think bid up the date a whole cap on prescription drugs is an easy target.

I and I mean give a kind of shows that this is again Wall Street estimates in general not just my opinion have been moving back because of some of the so there's all -- -- pressure up in pharmaceuticals in general.

So your first sector's health care to avoid your second is materials now obviously a lot of this is driven by.

Perhaps demand in China for growth we've started to see China stabilize and maybe even come back a -- why don't -- -- materials.

Well -- and again this is kind of the nature of earnings season is there were inherently a rearview mirror here we're talking about Q4 -- -- from.

-- -- it it's tied to December so there has been a little bit of recovery in pricing for some commodities out there like copper and iron and steel.

China has seen some optimism lately.

But again if you look at the Q3 numbers for some of these companies there's been a rollback in some the out as -- -- for these -- material stocks particularly in.

In copper aluminum iron just because.

The forecasts of Madonna I mean as we've seen without call -- -- actually beat it's numbers but the forecast was pretty darn low so.

You know we're talking direction only here though the bars are moving lower for -- these companies is not to say they won't step across that based on some optimism that generally speaking direction the pressure is down.

-- information technology -- tech sector in general course a lot of people have seen that because the PC is is losing ground because of all they.

The ipads and and the other tablets that that bad sectors -- we -- we see what's happened apple.

-- do you see coming with the IT sector.

Yeah I mean I think a lot of people kind that they hope yeah.

Secular recovery got ID spending that -- -- upgrade cycle for businesses.

Hasn't really happened you've seen a lot of pressure on estimates for.

Intel and AMD that's at India semiconductor companies Hewlett-Packard -- -- stories saying their results the consumer side with cap and it has -- seen.

They're just isn't as much demand -- -- are used to be PC sales -- down for the first time in five years of this holiday -- -- house and the -- moving down to reflect that's with the consumer and the business side and of course you know Apple's us and it's a move down to which is kind of -- -- -- and I was gonna ask you about -- at this -- is -- your opinion where do you think it goes from here.

I mean personally -- long term bullish on the stock I mean if you look at it again you look at the Smart money out -- analysts are predicting a price target median target among 4049 people out there are 730 bucks is thirty for 35% upside from here.

Even if that all -- -- happen is -- look at that significant gap.

I would caution people if you take EPS game -- an offer for 2014 and you say oh well you know the valuation isn't.

Super attractive to single digits because earnings -- -- gonna go down.

Even if you say that Apple's gonna make less money in 2012 or 2013 -- -- 2012.

That is still has our current PE of about fourteen which is fairly valued if it only makes 35 bucks is that a 56 bucks.

In -- in fiscal funny fourteen it's -- current PE of fourteen that's attractive historically for apple.

Not to -- for the entire S&P 500 is pretty attractive so.

I I would caution people not to play that game where they worry about apple falling off a cliff because that's mr.

gonna follow the -- to even if it does that is going to be fairly guys still a lot of Smart people -- -- making great things thanks Jeff good to see you thank you -- -- -- see fit well.

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