Highlighted stocks include: Alcoa Inc. (AA), Burlington Northern Santa Fe Corporation (BNI), Cephalon, Inc. (CEPH), CONSOL Energy, Inc. (CNX), Micron Technology, Inc. (MU), and Sunoco, Inc. (SUN)

Fourth-quarter earnings for the S&P 500 are projected to rise just 3.3%.

On a company-specific basis, the numbers look far worse. More than 275 S&P 500 members are forecast to report a year-over-year drop in per share earnings.

Growth Industries

Refiners, such as Sunoco, Inc. (SUN), will have among the highest growth rates. Plunging oil prices led to an improved crack spread, which allowed these companies to enjoy widened margins. (Lower demand due to economic conditions will cause profits to drop in 2009, however.)

SUN is a Zacks #2 Rank (”buy”) stock classified in Oil Refining & Marketing. The favorable Zacks Rank reflects the fact that fourth-quarter estimates have been revised upwards.

Staying on the energy front, coal producers CONSOL Energy, Inc. (CNX) and Massey Energy Company (MEE) should also report strong growth. Though coal prices have dropped significantly since June, much of the 2008 production had already been contracted out. This enabled these companies to enjoy higher prices, relative to the spot market and relative to 2007. (Both companies are also expected to show strong growth in 2009.)

CNX and MEE are Zacks #3 Rank (”hold”) stocks classified in Coal.

High demand for coal also played a role in maintaining earnings momentum for rail companies. As discussed previously in this column, rail companies’ reliance on coal and agricultural products has helped to offset some of the weakness caused by the automotive and housing sectors. In addition, they have taken market share away from trucking companies and their

Burlington Northern Santa Fe Corporation (BNI), Union Pacific Corporation (UNP), Norfolk Southern Corporation (NSC) and CSX Corporation (CSX) should report growth rates of 18% or better.

These are all Zacks #3 Rank stocks classified in Transportation-Rail. All of the aforementioned rail companies should have higher profits in 2009 as well, though rate of growth will be slower than it was in 2008.

Outside of the energy sector, drug and medical product companies enjoyed a good quarter. In fact, more than half of the drug companies within the S&P 500 are projected to have generated double-digit earnings growth thanks to insurance coverage, a lower level of economic sensitivity and Medicare Part D are playing positive roles.

Cephalon, Inc. (CEPH), Gilead Sciences, Inc. (GILD) and Varian Medical Systems, Inc. (VAR) should all report fourth-quarter growth in excess of 20%.

All 3 are Zacks #2 Rank (”buy”) stocks. CEPH and GILD are classified in Medicine-Biomed/Genetics. VAR is classified in Medical Instruments.

Industries With Declining Profits

The significant drop in commodity prices, combined with the credit crunch, significantly affected both mining companies and steel producers. Profits for Alcoa Inc. (AA), AK Steel Holding Corporation (AKS) and Nucor Corporation (NUE) likely dropped by 50% or more.

AA and AKS are Zacks #5 Rank (”strong sell”) stocks and NUE is a Zacks #4 Rank (”sell”) stock. AA is classified in Mining-Non-Ferrous. AKS and NUE are classified in Steel-Producers.

Semiconductor prices remain under pressure. Inventory and price competition had been a problem before the credit crunch occurred and the recession has only made matters worse. This morning, Micron Technology (MU) said that DRAM and NAND Flash prices fell 34% and 24%, respectively, during the quarter.

Nearly every chip company within the S&P 500 is expected to report a year-over-year decline in profits. This includes Intel Corporation (INTC) and Microchip Technology, Inc. (MCHP).

The only exception is Altera Corporation (ALTR), which may have generated profit growth of 31% this quarter.

ALTR and MU are Zacks #3 Rank stocks, MCHP is a Zacks #4 Rank stock and INTC is a Zacks #5 Rank stock. All 4 are classified in Electronic Components-Semiconductors.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

“VAR” Free Stock Analysis: Buy? Sell? Hold?
“SUN” Free Stock Analysis: Buy? Sell? Hold?
“CNX” Free Stock Analysis: Buy? Sell? Hold?
“CEPH” Free Stock Analysis: Buy? Sell? Hold?
“MU” Free Stock Analysis: Buy? Sell? Hold?
“AA” Free Stock Analysis: Buy? Sell? Hold?
“NSC” Free Stock Analysis: Buy? Sell? Hold?
“NUE” Free Stock Analysis: Buy? Sell? Hold?
“ALTR” Free Stock Analysis: Buy? Sell? Hold?
“GILD” Free Stock Analysis: Buy? Sell? Hold?
“AKS” Free Stock Analysis: Buy? Sell? Hold?
“MEE” Free Stock Analysis: Buy? Sell? Hold?
“INTC” Free Stock Analysis: Buy? Sell? Hold?
“UNP” Free Stock Analysis: Buy? Sell? Hold?
“CSX” Free Stock Analysis: Buy? Sell? Hold?
“BNI” Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Last 5 posts by Charles Rotblut

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