Finding bright spots in a gloomy earnings season

Published Thu, Oct 8 20152:11 PM EDTUpdated Thu, Oct 8 20152:30 PM EDT

The start of the third-quarter earnings season is here and experts believe it will not be pretty. Earnings and revenues for companies in the S & P 500 are expected to decline 4.5 percent and 3 percent, respectively, from the same period last year, according to estimates from the Street. "Just like in a number of past quarters, lower oil prices and the stronger dollar are depressing results significantly," Bank of America Merrill Lynch strategists told clients on Thursday. Similarly, market watchers at Barclays warned on Monday that profit margins in the past 12 months fell by 60 basis points, noting that declines of this magnitude are "rare" when the economy is not entering a recession. So what's the strategy for the weeks ahead? In an exclusive interview for CNBC Pro subscribers, Lindsey Bell, senior analyst and earnings expert at S & P Capital IQ, shares her investment outlook. The biggest drag on earnings this quarter will once again be energy, with the group expected to post a 66 percent drop in EPS, according to Bell. Despite the bleak outlook, the analyst believes investors can find value in the sector by focusing on refiners. The refining subsector is the only area within energy that's projected to post positive growth for the quarter, Bell highlights. She believes companies like Tesoro ( TSO ) and Valero ( VLO ), which are up over 30 percent this year, will continue to move higher. Refiners benefit from the crack spread , which measures the difference between the price of crude oil and petroleum products derived from it. Read More Goldman: Best earnings trades Contrary to energy, consumer discretionary stocks are expected to lead the way in Q3, showing EPS growth of nearly 12 percent, according to estimates from S & P Capital IQ. Those expectations have sent the consumer discretionary group up 6 percent this year, the highest return among all 10 S & P sectors. The strategy into earnings, however, is to not buy the group ahead of earnings, Bell said. Instead, the analyst recommends stepping in after the earnings are released since the historical trend has been for consumer stocks to sell off on the good news, but then rebound later. Within the consumer space, Bell recommends considering names like Ford ( F ), General Motors ( GM ), V.F. Corp. ( VFC ), BJ's Restaurants ( BJRI ) and Carter's ( CRI ).

Traders work on the floor of the New York Stock Exchange.

Lucas Jackson | Reuters

The start of the third-quarter earnings season is here and experts believe it will not be pretty.

Earnings and revenues for companies in the S&P 500 are expected to decline 4.5 percent and 3 percent, respectively, from the same period last year, according to estimates from the Street.

"Just like in a number of past quarters, lower oil prices and the stronger dollar are depressing results significantly," Bank of America Merrill Lynch strategists told clients on Thursday.

Similarly, market watchers at Barclays warned on Monday that profit margins in the past 12 months fell by 60 basis points, noting that declines of this magnitude are "rare" when the economy is not entering a recession.

So what's the strategy for the weeks ahead?

In an exclusive interview for CNBC Pro subscribers, Lindsey Bell, senior analyst and earnings expert at S&P Capital IQ, shares her investment outlook.