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B400 Companies Grew Strongly in Q2

John A. PrestboJohn A. Prestbo

The Barron’s 400 Index companies did it again—posted solid earnings and revenue growth in the second quarter, easily surpassing the S&P 500.

With more than 95% of component companies reporting (and 98% for the S&P 500), the Barron’s 400 also leaped over security analysts’ per-share earnings estimates. (Revenue predictions were much closer to the mark because revenue is easier to predict than earnings.) Here is the second-quarter box score, comparing median reported results with both estimates and year-earlier figures:

Reported EPS Vs. Reported Revenue Vs.
Estimate 2Q 2015 Estimate 2Q 2015
Barron’s 400 4.16% 10.51% 0.64% 5.81%
S&P 500 3.45% 7.20% 0.44% 2.25%

More than 65% of the Barron’s 400 companies reported year-over-year increases in second-quarter per-share earnings, compared to 60.5% for the S&P 500. In revenue gains the Barron’s 400 did even better, with 72.5% besting year-before results. By contrast, just 58.3% of the S&P 500 components did likewise.

At the sector level, the Barron’s 400 almost shut out the S&P 500. The table below shows the median of the most recent per-share earnings compared to estimates and a year earlier:

Barron’s 400 Reported EPS Vs. S&P 500 Reported EPS Vs.
Estimate 2Q 2015 Estimate 2Q 2015
Consumer Discretionary 2.70% 6.82% 4.40% 11.72%
Consumer Staples 3.48% 10.34% 3.84% 8.20%
Energy 8.57% -7.44% -7.54% -84.68%
Financials 2.17% 7.57% 3.24% 5.56%
Health Care 6.41% 11.65% 3.29% 10.53%
Industrials 4.35% 12.31% 2.27% 2.27%
Materials 3.49% 5.16% 1.63% 4.74%
Technology 5.02% 12.28% 4.96% 11.10%
Telecommunications -0.14% 14.55% 0.65% 4.35%
Utilities 0.33% 7.25% 3.46% 2.11%

Barron’s 400 companies racked up five double-digit gains year-over-year in five sectors, while the S&P 500 managed to do so in three. Only in consumer discretionary did the S&P 500 post a superior increase. That sector has 90 components in the S&P 500 compared to 77 for the Barron’s 400. Some big companies with significant increases in earnings per share, such as Amazon Inc., aren’t components of the Barron’s 400.

In revenue, the S&P 500 matched or bettered Barron’s 400 year-over-year results in two sectors—telecommunications and utilities—that are the two smallest in the Barron’s 400. In the eight other sectors, Barron’s 400 companies came out on top.

Barron’s 400 Reported Revenue Vs. S&P 500 Reported Revenue Vs.
Estimate 2Q 2015 Estimate 2Q 2015
Consumer Discretionary -0.12% 4.84% -0.03% 3.20%
Consumer Staples -0.02% 2.44% -0.14% 0.12%
Energy -1.78% 5.21% -1.15% -26.47%
Financials 3.42% 10.43% 2.61% 2.91%
Health Care 1.36% 15.27% 0.96% 8.03%
Industrials 0.12% 6.94% -0.14% 1.16%
Materials -0.11% 0.38% -0.24% -6.65%
Technology 0.86% 7.52% 1.03% 4.81%
Telecommunications 0.17% -0.24% -0.98% -0.24%
Utilities -8.30% -6.41% -3.81% -1.03%

The Barron’s 400 companies in financials and health care, which are important sectors for both indexes, recorded year-over-year double-digit gains. The bi-polar results for the energy sector can be attributed to the Barron’s 400 focusing on the few (12) companies exhibiting financial strength while the S&P 500’s more numerous components (37) include some of the hardest hit.

Although the Barron’s 400 is equally weighted, market capitalization size is another way of comparing its recent median results with those of the S&P 500.

Reported EPS Vs. Reported Revenue Vs.
Estimate 2Q 2015 Estimate 2Q 2015
Mega Cap (>$10 billion)
Barron’s 400 3.64% 11.46% 0.37% 4.62%
S&P 500 3.49% 7.49% 0.52% 2.50%
Large Cap ($3 bln-$10 bln)
Barron’s 400 4.68% 10.81% 0.44% 5.01%
S&P 500 2.90% 5.84% 0.25% 1.20%
Mid Cap ($1 bln-$3 bln)
Barron’s 400 5.38% 13.64% 1.20% 7.53%
S&P 500 NMF NMF NMF NMF
Small Cap ($500m-$1 bln)
Barron’s 400 5.16% 5.88% 1.41% 6.13%
S&P 500 NA NA NA NA
Micro Cap (< $500 mln)
Barron’s 400 -13.36% -26.19% -1.77% 16.34%
S&P 500 NA NA NA NA

In the only two size segments where the indexes compete, the Barron’s 400 companies have reported median gains two to four percentage points larger than those of the S&P 500. In addition, the mid-cap segment of the Barron’s 400—its largest—contributed the biggest year-over-year increases. The small-cap segment has brought its revenue and per-share earnings gains into better balance, but the small micro-cap segment’s costs are still out of line. However, the year-over-year sales gain in that segment is impressive.

The go-getter growth evident in the Barron’s 400 second-quarter results has not escaped investors’ attention. Since the second quarter ended on June 30, the Barron’s 400 index has risen 6.3% to the S&P 500’s 3.4%. Growth again has investor’s attention, and they obviously know where to find it.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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