By Jacob Sonenshine
With the S&P 500 having dropped almost 6% from its late January record high, finding companies that can easily beat earnings forecasts is a good way to find stocks that can jump soon.
The market is in a bad way right now, as the economy faces plenty of risk. Oil has spiked on the Iran conflict, stoking concerns about inflation and pushing interest rates upward. Sure, the issues may prove temporary, but why not look for individual stocks that look especially primed to bounce even under current conditions?
One way to do that: Scour for companies that appear to have a solid chance at beating analysts estimates for earnings.
Trivariate Research's Adam Parker did that, as he showed analysts aggregate 2026 earnings growth expectations for each S&P 500 sector, versus sectors' average profit growth rate from 2004 to 2024. The three sectors that have growth projections below their historical averages are materials, healthcare, and consumer staples. The idea is that, assuming these sectors haven't seen any kind of existential threat to their normal business and demand climates, they should be able to surpass what looks like fairly conservative analyst estimates.
Those sectors provide solid starting points for looking for stocks. For looking within a given sector, Parker writes, "We think it is particularly prudent to own stocks where the consensus forecasts both accelerating revenue growth and gross margin expansion."
The reasoning: Rising gross margins often show a company has pricing power with its customers, but it also gives a company wiggle room to boost its operating margin as long as other costs don't balloon. It often signals a company is boosting margins through strong demand, not by reducing operating costs, which can only go so far.
So we searched for materials and healthcare stocks that are forecast to see accelerating sales growth and gross margin expansion this year -- and have a history of beating expectations. These names are in the sectors that have "high estimate achievability," as Parker puts it. We're avoiding staples because many of those companies may be seeing long-term demand deterioration. Consider packaged food makers losing market share to healthier options.
One materials stock that fits the bill is water treatment and infection prevention product maker Ecolab, which sells to healthcare, industrial and food service companies. Analysts expect 8% sales growth this year, up from 2% last year, according to FactSet.
Gross margins are expected to climb about half a percentage point to almost 45%. It uses oil as part of its costs, but could offset any rising costs with price increases, which it has done in many years past -- and said on its February earnings call that it is doing again.
It could certainly get away with higher prices without losing too much demand, seeing that sales have grown every year except for one since 2017.
It has also beaten earnings estimates in 14 of the past 20 quarters. The worst quarter featured a miss of only 2.2% -- and that was all the way back in 2021. It next reports at the end of April.
Other materials makers that fit Parkers' criteria: Packaging Corp. of America, CRH, and Avery Dennison. The materials stocks listed below Ecolab have all beaten earnings estimates in the vast majority of at least the past 20 quarters.
Healthcare names include Thermo Fisher and Danaher. Those two have beaten earnings expectations in 18 and 19 of the past 20 quarters, respectively. Vertex Pharmaceuticals has beaten estimates in 15 of the past 20 quarters.
Give some of these names a look.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 14:10 ET (18:10 GMT)
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