Zacks Industry Rank Analysis Highlights: Becton Dickinson, General Dynamics, Intuitive Surgical, L-3 Communications and Smith International

To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This week: Q3 Earnings -- Where to Look for Growth

Key points:

-- Third-quarter earnings for the S&P 500 are projected to decline 5.4%

-- Conversely, nearly 60% of S&P 500 companies should report year-over-growth

-- Investors should therefore be selective about what stocks they buy and own

-- Companies likely to report growth include BDX, GD, ISRG, LLL and SII

Third-quarter earnings season officially started on Tuesday afternoon. Much like the second quarter, it will be a glass half empty versus a glass half full scenario.

At the index level, profits will decline. Our bottom-up analysis projects a 5.4% drop in S&P 500 earnings.

Conversely, nearly 60% of S&P 500 companies should report year-over-year growth. The median company is forecast to report a 5.9% increase in profits. If a majority of companies top expectations, median profit growth could be in the high single digits. Not tremendous growth, but good enough given the current economic backdrop.

The key takeaway for investors is to remain selective about what stocks you buy. Given the current level of volatility, a preference towards companies with a lower level of economic sensitivity and/or a margin of error in expected business conditions would be rewarded.

Medical Products

The entire medical sector often gets a second look by investors during periods of economic uncertainty. The good news for growth investors is that many medical product companies are expected to report double-digit year-over-year increases in profits.

Becton Dickinson (NYSE: BDX | Quote | Chart | News | PowerRating) is a good example. The company produces syringes, among other products. Diabetes care is a big market for the company.

The consensus earnings estimate calls for BDX to report a profit of $1.12 per share, representing year-over-year growth of 14%. This Zacks #2 Rank ("buy") stock has exceeded expectations every quarter for more than 5 years.

BDX is classified in Medical/Dental-Supplies (http://at.zacks.com/?id=4889).

Another option for growth investors is Intuitive Surgical (Nasdaq: ISRG). This company manufactures robotic surgical systems, which are used in the treatment of prostate cancer, kidney cancer, bladder cancer and other diseases.

ISRG is expected to generate profit growth in excess of 30%. Third-quarter earnings are forecast at $1.27 per share. Like BDX, ISRG is a Zacks #2 Rank stock that has a lengthy history of exceeding profit expectations.

ISRG is classified in Medical Instruments (http://at.zacks.com/?id=4890).

Aerospace and Defense

Regardless of who the next president will be, defense spending is unlikely to be curtailed. As a result, companies that rely heavily on the government should continue to do well. Examples include General Dynamics (NYSE: GD | Quote | Chart | News | PowerRating) and L-3 Communications (NYSE: LLL).

GD provides information systems, combat vehicles and submarines. Brokerage analysts project the company to have earned $1.49 last quarter, an 11.2% increase from a year ago. GD has exceeded expectations during 3 out of the last 4 quarters.

LLL supplies products and systems used in aerospace and defense platforms. Many know the company for its secure communication network systems, though it also provides many other products and services.

Forecasts call for the company to have earned $1.71 per share last quarter, which would be a 9.4% increase. The company has exceeded profit expectations for 8 consecutive quarters.

Both GD and LLL are Zacks #2 Rank stocks and are classified in Electronics-Military (http://at.zacks.com/?id=4888).

Oilfield Machinery and Services

Concern about weakening demand for oil has caused many energy-related stocks to fall significantly over the past few weeks. The downward pressure as it relates to oilfield machinery and service stocks (http://at.zacks.com/?id=4675), however, has been irrational.

Here's why. As long as oil stays above $65 per barrel, oil companies will continue to invest in getting Texas Tea out of the ground, as well as spend on infrastructure and maintenance. Therefore, business conditions for oilfield machinery and service companies should remain favorable for the foreseeable future.

One good example is Smith International (NYSE: SII). SII provides a full range of drilling products and services from the rig floor to the drill bit.

Ahead of the company's third-quarter report, 3 of the 16 covering brokerage analysts have raised their profit forecasts. The consensus third-quarter earnings estimate of $1.01 is 22% higher than what the company earned a year ago. SII topped expectations last quarter by 2 cents per share.

SII is a Zacks #2 Rank stock.

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SOURCE: Zacks.com

Zacks.com Charles Rotblut, CFA Phone: 312-265-9352 Email: pr@zacks.com Visit: www.Zacks.com