Earnings season for most S&P 500 companies is a time to post impressive growth. But a cohort of companies is about to shrink instead — something to watch out for if you're a growth investor.
Seven stocks in the index, including Microchip Technology, American International Group and General Electric, are expected to post a revenue drop of at least 30% for the third quarter, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSurge.
Such a big fall in revenue by these stocks stands out in a bad way. The S&P 500 itself is seen reporting 4.7% revenue growth in the third quarter, says John Butters of FactSet.
S&P 500 Sectors Trailing In Growth
Most S&P 500 sectors will post growth in the quarter. But not all.
Few investors will be surprised to find that information technology stocks will post the strongest growth: 11.7%, says FactSet. But it's easy to overlook the fact two sectors, industrials and energy, are forecast to shrink. Analysts think industrial companies' revenue will shrink 0.1%. And energy companies' revenue are expected to contract 4.9%.
Given tech's strong growth, Microchip Technology is an outlier — in a bad way. Analysts expect the company to post quarterly revenue of $1.2 billion. That's down nearly 49% from the same year-ago period. Such a poor outlook helps explain the stock's 14.4% drop this year, manifesting in a 17 RS Rating. The 41 EPS Rating is low, too, as earnings are seen coming in down 18% this year.
Falling Revenue In S&P 500
Financials in the S&P 500 are expected to have a decent third quarter for growth. Analysts think the sector will show 4.9% top-line growth. But that's even with AIG as an anchor.
The insurance giant is seen posting revenue of $6.8 billion in the quarter. That's down 47% from the same year-ago period. Investors, though, don't seem overly concerned yet. Shares are still up nearly 16% this year so far. AIG, as a result, sports an RS Rating of 61. Holding up the stock, somewhat, is decent profit growth despite contracting revenue. Analysts think the company's bottom line will shrink just 6% in 2024 before growing 34% in 2025.
And sometimes shrinking is desirable. Shares of General Electric are up 51% this year. That's even as analysts think the company's revenue in the third quarter will contract 46%. The company has unlocked shareholder value by splitting itself up into several companies. That forces each unit of the old GE to be competitive and also allocate its resources efficiently. GE carries an impressive RS Rating of 95 and EPS Rating of 85. Earnings are seen rising 30% this year and 23% next year.
Shrinking isn't always bad, as GE shows. But it's not ideal if you're looking for growth opportunities.
S&P 500 Companies Expected To Shrink Most
Based on third-quarter revenue forecasts
| Company | Ticker | Revenue decline (est.) | Sector |
|---|---|---|---|
| Microchip Technology | MCHP | -48.9% | Information Technology |
| American International Group | AIG | -47.0% | Financials |
| General Electric | GE | -45.9% | Industrials |
| Albemarle | ALB | -40.9% | Materials |
| Moderna | MRNA | -32.8% | Health Care |
| Deere | DE | -32.7% | Industrials |
| Fidelity National Information Services | FIS | -30.6% | Financials |
