Worried about S&P 500 companies' profit drying up next year? Don't be. You just need to know where the money's going.
Profit is expected to jump more than 70% at 11 S&P 500 companies in 2023, including financial company Allstate, communications firm T-Mobile US and United Airlines, say analysts. That's the highest expected profit growth among any of the companies in the popular index, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Such robust profit growth would be a welcome sight, especially in a year many fear a recession.
"Markets are nervous, and many investors are realizing that the Federal Reserve is likely going to keep its word and continue raising interest rates and that rates will remain higher for longer," said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management. "This realization is causing investors to rethink their exposure to the stock market heading into 2023."
But you just need to know where the profit growth will be.
Bracing For S&P 500 Profit Slowdown In 2023
If you're watching companies' darkening profit picture for 2023, it's not surprising to see the S&P 500 down nearly 20% this year. Profit growth isn't looking great for next year.
S&P 500 companies' profit is only expected to inch up 5.3% next year, says John Butters of FactSet. That's pretty disappointing growth if you figure the S&P 500's profit is only on pace to rise 5.1% in 2022. And keep in mind, analysts keep cutting their forecasts for S&P 500 growth next year. Just three months ago, analysts thought S&P 500 profit would rise 8.2%.
But don't assume all S&P 500 companies' profit growth is minuscule.
Plugging Into Big Profit Growth
You're not the only one looking for profit growth in 2023. Shares of the two companies expected to put up the most profit growth this year, Allstate and T-Mobile, are up this year.
Shares of insurer Allstate jumped 13.5% this year to 133.54. That makes them a big standout during what's been such a poor year for the S&P 500. Additionally, analysts think this stock has nearly 7% upside in the next 12 months. Why such positive vibes for the insurance company? Two words: profit growth.
Analysts think Allstate will make an adjusted $2.5 billion this year, or $9.32 a share. If those earnings materialize, it would make astounding 353% profit growth at Allstate. That's more profit growth than expected from any other S&P 500 company.
Meanwhile, one of Warren Buffett's favorite stocks, T-Mobile US, continues to deliver. Shares are up more than 21% this year. Again, analysts are trying to get in ahead of major profit growth in 2023. Analysts think the company will make an adjusted $8.5 billion, or 6.63 a share, in 2023. If that's right, it would mark nearly 180% profit growth next year. Amazingly, analysts still think T-Mobile's stock has room to rise an additional 27% in 12 months.
Profit About To Take Off In 2023
Another surprise for profit in 2023 is likely to come from airlines.
Analysts think two airlines, United Airlines and Delta Air Lines, will post some of the best profit growth among the S&P 500 in 2023. Both are seen putting up profit growth north of 70%. Specifically, analysts forecast United to earn more than $2 billion, or $6 a share, in adjusted profit in 2023. That's up more than 176% in a year's time.
But investors aren't plunging in just yet. They continue to wait for proof as they've been burned plenty of times this year moving too early. Shares of United are down nearly 12% in 2022, while Delta is off nearly 16%.
The time is fast approaching for these companies to prove they can deliver.
Profit Growth Superstars For 2023
S&P 500 companies analysts think will post the highest profit growth next year
| Company | Ticker | Sector | EPS growth expected in 2023 |
|---|---|---|---|
| Allstate | Financials | 353.3% | |
| T-Mobile US | Communication Services | 179.5 | |
| United Airlines | Industrials | 176.3 | |
| UDR | Real Estate | 162.9 | |
| EQT | Energy | 131.0 | |
| Targa Resources | Energy | 84.3 | |
| Baker Hughes | Energy | 78.8 | |
| Target | Consumer Discretionary | 76.8 | |
| Everest Re Group | Financials | 76.4 | |
| SolarEdge Technologies | Information Technology | 76.3 | |
| Delta Air Lines | Industrials | 70.9 |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
