vk.com/id446425943

Momentum persists: look for sustainable growth

As we discussed above, momentum tends to be the best performing style at this stage of the cycle, followed closely by growth. We create a combined growth/momentum score based on: 2019 expected sales and EPS growth, 12-1m price momentum, sales revision ratio (3m) and earnings revision ratio (3m). We calculate the cross sectional z-score for each factor, for sectors and IGs, and take the average across the five. Figure 65 shows sales and earnings revisions.

Energy, Retail, Media & Entertainment, Transports and Software & Svcs stand out as having the best relative growth and momentum; but most cyclical industry groups have relatively better fundamental backdrops. On the other hand, Consumer Staples, Autos & Comp, Div Fins and Semis stand out as having the most negative momentum and growth profile.

Relative growth and momentum are still supportive of most cyclicals on a relative basis, outside of Materials and Financials.

Figure 65: Earnings and sales revisions across sectors and industry groups

Earnings revision ratio (3m)

10%						Software & Svcs
				Telecom		Utilities	Energy
						Insurance
0%			Technology		Retailing	Capital Goods
								Com & Prof Svcs
			Pharma Bio	HC Equip & Svcs		Industrials
		Cons Dur & App		Tech Hdwr & Eq
-10%				Cons Disc	Comm Svcs
	Semis & Equip				Real Estate
			Financials	Consumer Svcs		Media & Ent		Transportation
		Div Financials		Banks
						Materials
-20%
-30%			Food Bev & Tob
			Cons Staples
-40%	Autos & Comp			Food&Stap Retail
	HH & Pers Prod
-50%
-22%	-17%	-12%	-7%		-2%	3%	8%

Sales revision ratio (3m)

Source: FactSet, IBES, UBS

Figure 66: Growth and momentum across sectors and industry groups

1.5

Composite growth+momentum z-score

1.0

0.5

0.0

-0.5

-1.0

-1.5

Energy

Industrials

Comm Svcs

Technology

Cons Disc

Health Care

Financials

Utilities

Materials

Real Estate

Cons Staples

Retailing

Media & Ent

Transportation

Software & Svcs

Tech Hdwr & Eq

HC Equip & Svcs

Com & Prof Svcs

Capital Goods

Insurance

Cons Dur & App

Consumer Svcs

Banks

Pharma Bio

Telecom

Semis & Equip

Div Financials

Food&Stap Retail

Food Bev & Tob

HH & Pers Prod

Autos & Comp

Source: FactSet, IBES, UBS

US Equity Strategy 13 November 2018

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