A quarter of U.S. corporate profits this year will come from just a dozen companies, analysts say. And investors are willing to pay up generously for these profit machines.
Just 12 stocks, including Magnificent Seven members like Apple and Microsoft in addition to some outsiders like JPMorgan Chase, will pull in 25% of all the 2023 profit generated by the S&P 1500, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Interestingly, though, these same companies account for even more — 30% — of the S&P 1500's value. The S&P 1500 includes all major U.S.-listed companies including giants in the S&P 500 and mid-size and small firms, too.
Seeing some stocks punch above their weight while many others, mainly smaller, value-priced or non-tech stocks, are left behind is telling. Bank JPMorgan Chase, for instance, only accounts for 1.1% of the S&P 1500's value despite being on pace to contribute twice that much — 2.2% — to the index's profit this year. "There's an interesting dichotomy in the market," said Robert Maltbie, fund manager of Argonaut 2000 Partners.
Looking At 2023 Profit For S&P 500 And Beyond
Finding profit growth was tough in 2023. So investors seemed content to pay up for those stocks with sheer earnings power.
Analysts think S&P 500 profit will only inch up by 0.8% in 2023 from 2022, says FactSet. That's anemic growth historically speaking. For instance, companies are expected to boost their profit by 11.7% in 2024.
Given the lack of profit growth, dominant companies pulled further ahead this year. Take Apple for instance. The gadget maker's adjusted net income this calendar year is only seen rising about 5% to $99.6 billion. Yes, that's 4.6% of the total profit expected from all of the S&P 1500. It's also more than any other S&P 1500 company contributed. But the stock rocketed nearly 50% in 2023 so far. So, at its current valuation Apple accounts for nearly 7% of the value of the S&P 1500.
Similarly, Microsoft is seen making $81.2 billion this calendar year. That's 3.7% of all the profit S&P 1500 companies are expected to earn. And yet, the stock soared nearly 55% this year on enthusiasm of the company's role in AI. Now, Microsoft accounts for 6.6% of the S&P 1500.
It's Not Just The "Magnificent Seven"
It's tempting to only think highly valued Magnificent Seven S&P 500 stocks are powering profit. But that's not the case.
Energy firm Exxon Mobil is seen adding $37.4 billion, or 1.7%, of the S&P 1500's profit this year. That makes it the fifth largest contributor. But it hold less than a 1% position in the S&P 1500. Meanwhile, financial Bank of America is expected to generate 1.3% of profit. But the bank's stock only accounts for 0.5% of the index's value.
And all this sets up a big question for 2024. Will S&P 500 investors develop an appetite for more than just seven stocks?
A Dozen S&P 1500 Companies Generate 25% Of Profit
In calendar year 2023
| Company | Ticker | % of total 2023 net income | Sector | Weight in 1500 |
|---|---|---|---|---|
| Apple | 4.6% | Information Technology | 6.8% | |
| Microsoft | 3.7 | Information Technology | 6.6 | |
| Alphabet | 3.3 | Communication Services | 3.4 | |
| JPMorgan Chase | 2.2 | Financials | 1.1 | |
| Exxon Mobil | 1.7 | Energy | 1.0 | |
| Meta Platforms | 1.7 | Communication Services | 1.7 | |
| Berkshire Hathaway | 1.7 | Financials | 1.5 | |
| Nvidia | 1.4 | Information Technology | 2.7 | |
| Amazon.com | 1.3 | Consumer Discretionary | 3.1 | |
| Bank of America | 1.3 | Financials | 0.5 | |
| Johnson & Johnson | 1.2 | Health Care | 0.9 | |
| Chevron | 1.2 | Energy | 0.6 |
