Earning season is around the corner, and analysts are getting more and more pessimistic.
FactSet found that earnings-per-share estimates for companies have fallen 8.2 percent since the year began, the largest drop since the first quarter of 2009.
Analysts now expect to see an earnings decrease of 4.2 percent from the first quarter of the year prior. And while analysts tend to underestimate the actual numbers, if earnings do decline from the first quarter of 2014, that would be the first year-over-year drop registered since the third quarter of 2012.
Given the plunge in oil prices, it should be no surprise that energy stocks are expected to post the biggest year-over-year earnings decrease (a gargantuan 64 percent decline is expected). But half of the 10 S&P sectors are expected to see earnings diminish, including the consumer staples sector.
Amid all of the pessimism, however, there are some bright spots.
The health-care sector is expected to post a 10 percent year-over-year earnings increase, the highest of any sector (that's per FactSet; numbers from different data providers vary, as they are aggregations of estimates). And though that would seem to imply that bullishness is already baked into the health-care stocks, it may still be wise to favor that sector ahead of earnings.
The health-care sector is "actually trading in line with its relative valuation, so it doesn't look too peakish," said Erin Gibbs, equity chief investment officer with S&P Capital IQ.
"Another bonus is that it only has about 16 percent of revenues coming from outside the U.S. That means it has less exposure to the appreciating dollar," Gibbs pointed out. "Because health care doesn't have that much exposure we think there is less risk for them missing earnings, and to be able to achieve those high growth numbers that we're seeing."
That is, since the rising dollar is likely to receive the blame for a bevy of disappointing reports, investors might as well hide out in a sector where foreign sales don't play a huge role.
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Technician Todd Gordon of TradingAnalysis.com also likes health-care stocks, along with financials and the consumer discretionary sectors. That's because those have been the strongest over the past month.
Of course, it is probably no coincidence that those three sectors also have the highest expected earnings in the quarter set to be reported in the weeks ahead.