3 Sectors Set To Report Blistering Growth As Q4 Earnings Kick Off

Wall Street's fourth quarter earnings season kicks off this week, with banking giants JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) all set to report their latest financial results on Friday morning, ahead of the US session open.

FactSet data shows analysts anticipate Q4 S&P 500 earnings will jump by 21.7% when compared to the same period last year, mainly due to the fading impact of the coronavirus pandemic on several industries. If confirmed, Q4 2021 would mark the fourth straight quarter of earnings growth above 20%.

At the sector level, nine of the 11 sectors are projected to report Y-o-Y earnings growth, led by the Energy, Materials, Industrials, and Health Care sectors.

Sector EPS Expectations

Note: The Energy sector is forecast to report earnings of $28.1 billion for the fourth quarter, a significant improvement from a loss of $0.1 billion in the challenging year-ago period, when the COVID-19 health crisis shut down the economy. As such, no Y-o-Y comparison is available.

Revenue expectations are also promising, with sales growth expected to increase 12.9% from the same period a year earlier. If confirmed, it will mark the third highest Y-o-Y revenue growth rate reported by the index since FactSet began tracking this metric in 2008, trailing only the previous two quarters. The current record is 25.3%, which occurred in Q2 2021.

All 11 sectors are anticipated to report Y-o-Y revenue growth, led by the Energy, Materials, Real Estate, and Industrials sectors.

Sector Revenue Expectations

Below we break down three sectors whose financial results are projected to show exponential growth from the year-ago period amid the current market conditions.

1. Energy: Soaring Oil Prices To Boost Results

• Projected Q4 EPS Growth: +28,200% Y-o-Y
• Projected Q4 Revenue Growth: +66.9% Y-o-Y

The Energy sector is forecast to report earnings of $28.1 billion for the fourth quarter, a significant improvement from a loss of $0.1 billion in the challenging year-ago period, when the COVID-19 health crisis shut down the economy.

With higher oil prices benefitting the sector—the average price of WTI crude in Q4 2021 was $77.10 per barrel, 81% above the average price of $42.70 in Q4 2020—it is also projected to record the highest Y-o-Y increase in revenue of all 11 sectors at 66.9%, according to FactSet.

At the company level, ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP) are expected to be the largest contributors to the Y-o-Y spike in earnings for the sector. Combined, the three oil majors account for $16.5 billion of the projected $28.3 billion Y-o-Y improvement in earnings for the sector.

According to the InvestingPro Energy Stock Screener, a few other notable names set to enjoy significant improvements in their Q4 financial results are Diamondback Energy (NASDAQ:FANG), Continental Resources (NYSE:CLR), Pioneer Natural Resources (NYSE:PXD), Coterra Energy (NYSE:CTRA), and Devon Energy (NYSE:DVN), which are all expected to post growth of more than 100% in both EPS and revenue.

InvestingPro Energy Stock Screener

Source: InvestingPro

The Energy Select Sector SPDR® Fund (NYSE:XLE)—which tracks a market-cap-weighted index of U.S. energy companies in the S&P 500—is up 50.3% in the last 12 months, compared to the S&P 500’s 24% gain over the same timeframe.

In addition to Exxon, Chevron, and ConocoPhillips, some of XLE’s largest holdings include, EOG Resources (NYSE:EOG), Pioneer Natural Resources (NYSE:PXD), Schlumberger (NYSE:SLB), Marathon Petroleum (NYSE:MPC), Williams Companies (NYSE:WMB), Phillips 66 (NYSE:PSX), and Kinder Morgan (NYSE:KMI).

XLE Daily Chart

2. Industrials: Aerospace & Defense, Airlines To Lead Y-o-Y Growth

• Projected Q4 EPS Growth: +108% YoY
• Projected Q4 Revenue Growth: +12.3% YoY

The Industrials sector was among the hardest hit by COVID-related shutdowns this time last year. However, this quarter, it is expected to report the second highest Y-o-Y gain in earnings of all 11 sectors, with an impressive 108% surge in Q4 EPS, according to FactSet.

In fact, 11 of the 12 industries in the sector are forecast to report a jump in Y-o-Y profit, led by the Aerospace & Defense, and Airlines groups, for which the collective EPS is anticipated to jump 380% and 78%, respectively from a year ago.

The sector—which is perhaps the most sensitive to economic conditions—is also anticipated to report the fourth largest Y-o-Y revenue growth, with Q4 sales set to rise 12.3%.

At the company level, Southwest Airlines (NYSE:LUV) and Delta Air Lines (NYSE:DAL) are two equities to watch. Southwest is forecast to post Q4 EPS of $0.04, improving substantially from a loss of $1.29 per share last year, while Delta is expected to report revenue of $8.85 billion, up about 123% from sales of $3.97 billion in Q4 2020.

According to the InvestingPro Industrials Stock Screener, United Parcel Service (NYSE:UPS), Raytheon (NYSE:RTN) Technologies (NYSE:RTX), Caterpillar (NYSE:CAT), and Boeing (NYSE:BA) are some of the other notable companies anticipated to report solid Q4 results.

InvestingPro Industrials Stock Screener

Source: InvestingPro

The Industrial Select Sector SPDR® Fund (NYSE:XLI), which tracks a market-cap-weighted index of industrial sector stocks drawn from the S&P 500, is up 18.2% in the past 12 months.

XLI’s top ten holdings include Union Pacific (NYSE:UNP), UPS, Honeywell International (NASDAQ:HON), Raytheon, Boeing, Caterpillar, General Electric (NYSE:GE), 3M (NYSE:MMM), Deere (NYSE:DE), and Lockheed Martin (NYSE:LMT).

XLI Daily Chart

3. Materials: Metals & Mining Rally To Power Profit, Sales Growth

• Projected Q4 EPS Growth: +60.9% YoY
• Projected Q4 Revenue Growth: +24.6% YoY

The Materials sector is forecast to print the third biggest Y-o-Y earnings jump of all 11 sectors, with Q4 EPS anticipated to surge nearly 61% from the turbulent year-ago period, according to FactSet.

With stronger metals prices, including copper, iron ore, nickel, platinum, palladium, and gold, helping the sector, it is also expected to report the second largest Y-o-Y increase in revenue, with sales forecast to grow almost 25%.

Not surprisingly, all four of the industries in the sector are predicted to report robust Q4 growth, with the Metals & Mining group set to see profit and sales spike 132% and 56%, respectively, from the year-ago period.

At the company level, Nucor (NYSE:NUE) is expected to be the largest contributor to Y-o-Y earnings growth for the sector, with EPS and revenue set to pop 956% and 81.7%, respectively, from the year-ago period.

In addition, Freeport-McMoRan (NYSE:FCX), Dow (NYSE:DOW), and LyondellBasell Industries (NYSE:LYB) are other notable companies from the group that stand out for their potential to record impressive Q4 results, according to the InvestingPro Materials Stock Screener.

InvestingPro Materials Stock Screener

Source: InvestingPro

The Materials Select Sector SPDR® Fund (NYSE:XLB) tracks a market-cap-weighted index of U.S. basic materials companies in the S&P 500 and is up 16.8% in the last 12 months.

XLB’s ten largest stock holdings include Linde (NYSE:LIN), Sherwin-Williams (NYSE:SHW), Air Products & Chemicals (NYSE:APD), Ecolab (NYSE:ECL), Freeport-McMoRan, Newmont Mining (NYSE:NEM), Dow, DuPont de Nemours (NYSE:DD), PPG Industries (NYSE:PPG), and International Flavors & Fragrances (NYSE:IFF).

XLB Daily Chart