Companies' first-quarter profit apparently didn't inspire much confidence — the S&P 500 kept selling off as fears of recession heat up. But analysts still insist some companies' businesses are doing rather well right this minute.
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In fact, profit is expected to jump more than 300% at eight S&P 500 companies in the ongoing second quarter that ends in June for most of them, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. The companies seen putting up massive profit growth include mostly energy firms like Valero Energy (VLO) and Warren Buffett favorite Occidental Petroleum (OXY) plus materials firm CF Industries (CF). Certainly, such giant surges in profit undermine fears of a universal economic slowdown. Worries of a global recession are one reason why the S&P 500 is down more than 16% this year and flirting with a 20% bear market.
"Many are rationalizing today's rebound with the logic that much more downside would only be warranted if a recession was likely to happen early next year and that won't be determined for a few more months," said Edward Moya, strategist at Oanda.
What S&P 500 Recession?
Meanwhile, investors fearing a recession are certainly taking the worst-case scenario. Nothing in the data, other than the falling S&P 500, indicates a recession though.
However, now that nearly 80% of the S&P 500 has reported first-quarter results, the bottom line looks pretty good. All told, earnings in the period are coming in 9.1% ahead of where they were in the same year-ago period, says John Butters, analyst at FactSet. Additionally, 77% of companies so far have topped profit forecasts. That's in line with the number that traditionally do.
So, why is the S&P 500 down nearly 17% this year, and the Nasdaq down even more than that? Investors fear a slowdown is coming. Analysts think the rate of S&P 500 profit growth in the second-quarter of 2022 versus the same period in 2021 will be less than half the 9% year-over-year growth seen in the first quarter of 2022, falling to just 4.1%.
But that's not to say you can't find companies putting up huge profit numbers.
Massive Profit From S&P 500 Energy
The price of light crude oil trading on the Nymex is up nearly 10% since March 31. And you can expect that pricing power and much more to flow to S&P 500 energy firms' bottom lines.
For example, Valero Energy is a dramatic example of a company putting up giant numbers. The company is seen making an adjusted $4.94 a share in the current second quarter. If that materializes, it would mark a 929% jump in profit from the same period a year ago. That's the biggest expected profit jump in all of the S&P 500. And it's not just due to rising oil prices. Efficiency and utilization plays a role, too. Revenue, which is more directly associated with oil prices, is "only" expected to rise 33.5% during the quarter. The company is expected to report current-quarter profit on July 26.
Warren Buffett Wants A Piece Of The Profit
And don't think this profit boom is missed by Warren Buffett, who's having a great (but not perfect) year. One of his top holdings, energy firm Occidental Petroleum, is expected to post 777% higher profit in the second quarter, versus the same period in 2021. No wonder Buffett's Berkshire Hathaway owns more than 15% of the company. That's been an amazing place to be: Shares are up more than 125% this year. It's expected to report second-quarter results in August.
Additionally, nearly all the top jumps in profit in the second quarter will likely come from the energy patch. But not all. Hydrogen and nitrogen company CF Industries is also seen putting up big numbers. Analysts are calling for the company to earn $6.43 a share in the second quarter. That's up more than 459% from the second quarter of 2021. It, too, is seen reporting results in August.
While profit growth might be faltering in many corners of the S&P 500, some are still more than holding up.
Big Profit Coming In S&P 500
S&P 500 companies expected to post most profit growth in second quarter of 2022
| Company | Ticker | YTD stock % ch. | Expected EPS growth in Q2 2022 | Sector |
|---|---|---|---|---|
| Valero Energy | (VLO) | 65.0% | 929.0% | Energy |
| Hess | (HES) | 58.0% | 776.7% | Energy |
| Occidental Petroleum | (OXY) | 125.7% | 765.9% | Energy |
| Marathon Petroleum | (MPC) | 51.5% | 543.6% | Energy |
| Marathon Oil | (MRO) | 71.3% | 462.6% | Energy |
| CF Industries | (CF) | 43.0% | 459.2% | Materials |
| Phillips 66 | (PSX) | 31.2% | 359.7% | Energy |
| Coterra Energy | (CTRA) | 70.4% | 304.3% | Energy |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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