Investors love a good rags to riches story — they're making lots of money on them, too. And soon, there will be likely many more to choose from in the S&P 500.
No fewer than 22 S&P 500 companies, including industrials like Boeing and Delta Air Lines plus energy firm Valero, are expected to make money in 2022 after losing money in both 2021 and 2020, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
And six of those 22 losers-to-winners are expected to make $1 billion — or much more — in 2022.
Such remarkable turnarounds are exactly what many investors are looking for. Shares of the 37 S&P 500 companies that lost money on an adjusted net income basis in 2020 are up 27.7% this year, so far. That's staggering. It's nearly 10 percentage points higher than the S&P 500's 18% gain this year.
And big jumps in profits are still possible. Soon, S&P 500 investors will starting looking into 2022. "Wall Street analysts' U.S. corporate earnings expectations are still too low," said Nicholas Colas, co-founder of DataTrek Research.
Looking To S&P 500 Profit In 2022
It's been an amazing second-quarter profit reporting season for the S&P 500. But that's ancient history now. What matters is 2022.
Analysts are already calling for S&P 500 companies' profit to jump 9.5% in 2022, says John Butters of FactSet. Some S&P 500 sectors are seen doing even better than that. Profit in the industrials sector is expected to soar 33.5% — that's more than any of the other 10 S&P 500 sectors.
Meanwhile, profit in the materials and energy S&P 500 sectors are expected to gain 32.2% and 25.6%, respectively.
Where are these big profit improvements coming from? The most dramatic examples are S&P 500 companies on pace to make $1 billion or more in 2022, following losses in 2021 and 2020.
And some of these turnarounds will look more like U-turns.
Money Falling Out Of The S&P 500 Sky
Want to know where many of the biggest profit takeoffs are coming from? Just look up.
Boeing, a long struggling aerospace company, is on pace to make an adjusted profit of $3.6 billion in 2022. That's far from a record for Boeing. Keep in mind it made an adjusted profit of $9.4 billion in 2018.
But it's been losing money since. Boeing is on pace to lose another $314 million this year. But the stock is up 8.5% on hopes 2022 is the year the red ink runs out. Should you buy Boeing stock now?
Also looking at sky-high profit is Delta Air Lines. Thanks to the Covid-19 outbreak's chilling effect on air travel, Delta lost $6.4 billion in 2020 and is on pace to lose another $2.2 billion this year. And that explains the stock's 2.2% drop this year so far.
Analysts, though, see good times on the horizon. Delta is seen making nearly $2.8 billion in 2022. That would help the company start to climb out of its steep decline. Should you buy Delta now?
S&P 500 Energy Tries To Dig Out
Energy stocks continue to set the pace in the S&P 500 this year. But it will soon be time for the companies to deliver the actual profits investors are counting on.
The Energy Select Sector SPDR ETF is up 28.8% this year, putting it in the pole position for price gains in the S&P 500. And a big reason is investors are bracing for a profit gusher in 2022.
Take Valero Energy. The company is expected to make $2.2 billion in 2022. That's a complete reversal from the previous two years' losses. The company lost nearly $1.3 billion in 2020 and is supposed to lose another $24 million in 2021.
To be sure, 2022 is still many months away. Analysts' forecasts may still come in lower, especially if Covid-19 continues to spread.
But seeing so many S&P 500 companies rise from the red into the black shows you where much of the S&P 500's anticipatory strength is coming from. And Colas thinks 2022 estimates are more likely to rise than fall.
"While the market has been accurately ahead of Wall Street estimates all year, this fact also means we need to see continued steady U.S. and global economic improvement," he said.
'Rags To Riches' S&P 500 Companies
All seen making $1 billion or more in 2022, after losing money in 2020 and 2021
| Company | Ticker | Net loss 2020 ($ billions) | Est. net loss 2021 ($ billions) | Net income 2022 ($ billions, est.) | Sector | YTD % ch. |
|---|---|---|---|---|---|---|
| Boeing | -$13.2 | -$0.3 | $3.6 | Industrials | 8.5% | |
| Delta Air Lines | -6.8 | -2.2 | 2.8 | Industrials | -2.3% | |
| Valero Energy | -1.3 | -0.02 | 2.2 | Energy | 16.7% | |
| Southwest Airlines | -3.5 | -0.95 | 2.0 | Industrials | 6.7% | |
| Las Vegas Sands | -1.6 | -0.39 | 1.5 | Consumer Discretionary | -31.8% | |
| United Airlines | -7.7 | -3.3 | 1.3 | Industrials | 7.4% |
