Profit Estimates Require Leap of Faith
'Tis the time of year when we traditionally take stock of where we've been, count our blessings and ponder what the future holds.
For investors, 2006 was a year of surprises. Few would have predicted at the start of the year that S&P 500 earnings growth would actually accelerate in 2006 -- up 14%, compared with a 12% gain during 2005 -- and that the stock market would applaud with a powerful rally.
And, contrary to conventional wisdom, small-caps have outperformed large caps yet again, as stocks in the iShares Russell 2000 (IWM) index delivered 23% earnings growth. As they say, it's tough to make predictions, especially about the future.
Of course, we're not going to let that stop us, so here's our best guess at where the growth will -- and won't -- be in 2007. Using current consensus estimates for the index constituents, we've calculated anticipated 2006-07 earnings growth of various well-known broad market exchange-traded funds.Estimates for next year range from a high of 27% for the small-cap iShares Russell 2000 index fund to a low of 6% for the large-cap iShares Russell 1000 Value (IWD) fund. The benchmark Dow Industrials and S&P 500 are forecast to have 10% and 9% earnings per share growth in 2007, respectively.
|Where The Growth Is
Estimated EPS Growth
|Ticker||Fund||2007E Change||2006E Change|
|IWM||iShares Russell 2000||26.50%||22.80%|
|QQQQ||NASDAQ-100 Tracking Stock||22.90%||18.80%|
|IJR||iShares S&P SmallCap 600||15.40%||14.10%|
|IWF||iShares Russell 1000 Growth||14.50%||15.60%|
|MDY||S&P MidCap 400 SPDR||13.30%||13.70%|
|PRF||PowerShares FTSE-RAFI U.S. 1000||10.90%||21.60%|
|IVW||iShares S&P 500 Growth||10.70%||10.10%|
|DIA||Dow Industrials DIAMONDS||10.10%||29.40%|
|SPY||S&P 500 SPDR||8.90%||14.10%|
|IVE||iShares S&P 500 Value||7.90%||16.80%|
|DVY||iShares DJ Select Dividend Index||6.60%||13.70%|
|IWD||iShares Russell 1000 Value||5.80%||13.50%|
|Note: Using consensus estimates for current index constituents, ranked by 2007E YoY EPS growth|
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