Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) have gotten most of the credit for driving the big gains in the S&P 500’s (.SPX) consumer-discretionary sector this year.
But even with the streaming-video giant’s departure to the index’s new communications sector last month, analysts say the discretionary stocks are poised to keep powering higher.
Netflix shares have surged 99% this year and are the third-best performers in the S&P 500, behind chip company Advanced Micro Devices Inc. (AMD) and medical-device company Abiomed Inc. (ABMD). The consumer-discretionary sector, meanwhile, has risen 19%—just short of the market-leading technology sector’s 20% gain.
Because the S&P 500 is weighted by market value, the loss of Netflix shouldn’t have a big impact. Netflix represented about 5% of the market value of the consumer-discretionary sector, according to Lindsey Bell, investment strategist at CFRA Research.
She noted there are seven other companies, including Amazon, Home Depot Inc. (HD), AutoZone Inc. (AZO), Booking Holdings Inc. (BKNG), and McDonald’s Corp. (MCD), that make larger contributions to the sector on an earnings basis.
Netflix now represents 6.6% of the market value in the new communications sector, which also houses technology and media giants including Google parent Alphabet Inc., (GOOGL), Facebook Inc. (FB), and Walt Disney Co. (DIS).
Some portfolio managers have said they don’t expect investors who already own Netflix and these other popular names to see a huge effect from the reshuffling.
“There’s going to be money flowing into these names due to a tailwind from investors and wealth-management firms buying this new sector,” said Brian Sterz, portfolio manager at Miracle Mile Advisors.
The next big test for Netflix shares will likely come Oct. 16 when the company reports third-quarter results. Investors will be watching to see whether the company can meet its own subscriber growth forecasts after it fell short of that metric in July, sparking a big selloff in its shares.
Ahead of the report, Aash Shah, senior portfolio manager at Summit Global Investments, cautions that the company faces headwinds maintaining growth internationally.
“This is a typical problem of most smaller companies that become larger,” Mr. Shah said. “Their scale makes it difficult maintaining those growth rates.”
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