Great expectations for energy shares on both sides of the Atlantic

We’ve given our earnings upgrade momentum screens a facelift. Apart from slight tweaks, the market-beating methodology is the same, but we’re now screening from different large-cap, mid-cap and small-cap indices. We’ve also added a US screen that highlights the best S&P 500 momentum stocks. Results this month are somewhat reflective of asset allocators’ preferred trades in an environment of rising inflation and central banks turning hawkish on rates.

We’re now basing the starting universe for our UK Alpha screens on the Numis index family - the aim is to give results that better fit into a remit of identifying large cap, mid cap and small cap shares. 

Main market and Aim shares will be grouped according to market capitalisation (which affects the momentum ranking in each size grouping and gives more useful results). We will also be using indices that exclude investment trusts, although we continue to cover ITs extensively in the Alpha investment trust report.

We’ve temporarily eased the year one earnings upgrade momentum tests to allow for the effect the pandemic has had on how forecasts have changed.

Leading larger companies reflect the improved performance and a bullish view of the prospects for oil & gas, resources and energy companies.  Banks also score well, as although they will face loan impairments if higher interest rates cause a recession, those higher rates will make lending more profitable to individuals and businesses that remain solvent. 

Small companies are grouped together in our version of Numis’ NSCI plus Aim index. This includes all main market companies that were in the bottom 10 per cent in size by market capitalisation and Aim companies that are below that size cut-off.  This gives a much better appreciation of the opportunity set for UK-listed small companies. Three companies pass all the tests. 

We’ve also screened the S&P 500 for earnings upgrade stocks stateside. We’re including only companies that pass 7/7 tests this month and the results reflect the surge in positive sentiment towards the energy sector.