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What are we looking for?

Let's look at which sectors have the strongest earnings momentum in North America going into 2011.

More about today's screen

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This is a repeat of a screen we've done before using StarMine, a Thomson Reuters service that gathers earnings estimate data from analysts. StarMine measures earnings-revision momentum, which is how much earnings estimates have risen or fallen. We're looking at earnings estimate revisions over the past 30 and 60 days for the next quarter, next 12 months and two years out.

The thinking here is that investors will follow profits so the sectors with the strongest earnings-revision momentum should continue to do well.

We'll sort by sectors with the strongest earnings revisions made over the past two months for the next 12 months. We'll accept only mid- and large-capitalization Canadian and U.S. companies in the screen.

What did we find out?

The commodities sectors have the strongest momentum by far. Over the last two months, analysts have raised the profit outlook for the next 12 months for the materials sector by 5.8 per cent and the energy sector by 3.1 per cent. The outlooks for the next quarter and two years have risen as well.

Within materials, it is the metals and mining sector that is garnering the most optimism. Over the last two months, analysts have raised the 12-month profit outlook for metals and mining by 9.7 per cent, compared with 1.5 per cent for paper and forest products, 2.4 per cent for chemicals, 0.9 per cent for containers and packaging and negative 5.4 per cent for construction materials.

Also take a look at the last column, which shows the "SmartEstimate" for the next 12 months. The SmartEstimate takes into account only analysts who have the most timely and accurate earnings estimate history. In other words, the SmartEstimate puts the most weight on the most accurate analysts.

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The SmartEstimate for the Canadian materials sector is the highest of all sectors, showing 46-per-cent expected earnings growth for the next 12 months.

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