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Wall Street wrapped up its worst first nine months of a calendar year since 2002 as persistently high inflation and an economic downturn caused by an aggressive Fed rate hike continued to weigh on investor sentiment. This has made stocks cheaper, compelling investors to buy the dip (read: 5 Solid ETFs Under $20 for Your Portfolio).
Using our database, first we selected ETFs with a Zacks Rank #1 (Strong Buy) or 2 (Buy). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a rising market. Then, we narrowed down the list to funds having a lower P/E ratio than 21.7 for the broad market fund (SPY - Free Report) .
We have highlighted five ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market. These are Invesco S&P SmallCap Energy ETF (PSCE - Free Report) , U.S. Global Jets ETF (JETS - Free Report) , First Trust Financials AlphaDEX Fund (FXO - Free Report) , Invesco DWA Healthcare Momentum ETF (PTH - Free Report) and Invesco S&P MidCap Value with Momentum ETF (XMVM - Free Report) .
All three major indices are in a bear market. The Dow Jones Industrial Average is down 21% while the S&P 500 is off 25%. The tech-heavy Nasdaq Composite has underperformed, tumbling 32%. The Federal Reserve has been on an aggressive tightening policy to fight skyrocketing inflation, which is near its highest levels since the early 1980s. In its fight, Fed Chair Jerome Powell raised interest rates by 75 bps for the fourth consecutive time that pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The rapid tightening has sparked worries of a recession, leading to a sell-off in the stock markets.
An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending, thereby hurting economic growth (read: 4 ETFs to Play the Key Events in Q4).
However, Wall Street started the week on a high note, with the S&P 500 staging its biggest two-day rally since 2020. The rally seems to come from the speculation that inflation might ease and interest rates have peaked. A slowing labor market suggests that inflation could fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively.
Invesco S&P SmallCap Energy ETF offers exposure to the companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 28 stocks in its basket (read: Oil ETFs Up on Steep OPEC+ Output Cuts).
Invesco S&P SmallCap Energy ETF has accumulated $120.3 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 173,000 shares and has a Zacks ETF Rank #2.
U.S. Global Jets ETF provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. The product holds 49 securities and charges 60 bps in annual fees.
U.S. Global Jets ETF has gathered $2 billion in its asset base while seeing a heavy trading volume of nearly 7 million shares a day. JETS has a Zacks ETF Rank #2 (read: Time for Top-Ranked Airlines ETF?).
First Trust Financials AlphaDEX Fund (FXO - Free Report) – P/E Ratio: 8.01
First Trust Financials AlphaDEX Fund targets the broad financials sector and follows the StrataQuant Financials Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. Holding 100 stocks in its basket, the ETF has amassed $1.1 billion and charges 61 bps in annual fees.
First Trust Financials AlphaDEX Fund trades in an average daily volume of 111,000 shares and has a Zacks ETF Rank #2.
Invesco DWA Healthcare Momentum ETF follows the Dorsey Wright Healthcare Technical Leaders Index and holds a basket of 54 U.S. companies. It has AUM of $237.4 million and charges 60 bps in annual fees. Biotechnology takes the largest share at 40.2% while healthcare providers and services, and pharmaceuticals round off the next two with double-digit exposure each.
Invesco DWA Healthcare Momentum ETF trades in a light average daily volume of 7,000 shares and has a Zacks ETF Rank #2.
Invesco S&P MidCap Value with Momentum ETF (XMVM - Free Report) – P/E Ratio: 10.77
Invesco S&P MidCap Value with Momentum ETF follows the S&P MidCap 400 High Momentum Value Index, which is composed of securities in the S&P MidCap 400 Index having both the highest value scores and momentum scores. It holds 81 stocks in its basket with key holdings in financials, materials, consumer discretionary, and industrials.
Invesco S&P MidCap Value with Momentum ETF has accumulated $180.5 million in its asset base while trading in a volume of 15,000 shares per day, on average. The fund charges 39 bps in annual fees and has a Zacks ETF Rank #2.
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5 Top-Ranked ETFs With Lower P/E Ratio
Wall Street wrapped up its worst first nine months of a calendar year since 2002 as persistently high inflation and an economic downturn caused by an aggressive Fed rate hike continued to weigh on investor sentiment. This has made stocks cheaper, compelling investors to buy the dip (read: 5 Solid ETFs Under $20 for Your Portfolio).
Using our database, first we selected ETFs with a Zacks Rank #1 (Strong Buy) or 2 (Buy). This is because these ranks suggest strengthening fundamentals and superior weighting methodologies that could allow them to lead higher than their cousins in a rising market. Then, we narrowed down the list to funds having a lower P/E ratio than 21.7 for the broad market fund (SPY - Free Report) .
We have highlighted five ETFs from different zones of the market that are currently undervalued and could generate solid returns in a rising stock market. These are Invesco S&P SmallCap Energy ETF (PSCE - Free Report) , U.S. Global Jets ETF (JETS - Free Report) , First Trust Financials AlphaDEX Fund (FXO - Free Report) , Invesco DWA Healthcare Momentum ETF (PTH - Free Report) and Invesco S&P MidCap Value with Momentum ETF (XMVM - Free Report) .
All three major indices are in a bear market. The Dow Jones Industrial Average is down 21% while the S&P 500 is off 25%. The tech-heavy Nasdaq Composite has underperformed, tumbling 32%. The Federal Reserve has been on an aggressive tightening policy to fight skyrocketing inflation, which is near its highest levels since the early 1980s. In its fight, Fed Chair Jerome Powell raised interest rates by 75 bps for the fourth consecutive time that pushed the benchmark rate to 3.0-3.25%, the highest level since 2008. The rapid tightening has sparked worries of a recession, leading to a sell-off in the stock markets.
An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans that will likely cut consumer spending, thereby hurting economic growth (read: 4 ETFs to Play the Key Events in Q4).
However, Wall Street started the week on a high note, with the S&P 500 staging its biggest two-day rally since 2020. The rally seems to come from the speculation that inflation might ease and interest rates have peaked. A slowing labor market suggests that inflation could fall in the coming months, removing pressure on the Fed to tighten its policy so aggressively.
ETFs to Buy
Invesco S&P SmallCap Energy ETF (PSCE - Free Report) – P/E Ratio: 3.72
Invesco S&P SmallCap Energy ETF offers exposure to the companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 28 stocks in its basket (read: Oil ETFs Up on Steep OPEC+ Output Cuts).
Invesco S&P SmallCap Energy ETF has accumulated $120.3 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 173,000 shares and has a Zacks ETF Rank #2.
U.S. Global Jets ETF (JETS - Free Report) – P/E Ratio: 4.32
U.S. Global Jets ETF provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. The product holds 49 securities and charges 60 bps in annual fees.
U.S. Global Jets ETF has gathered $2 billion in its asset base while seeing a heavy trading volume of nearly 7 million shares a day. JETS has a Zacks ETF Rank #2 (read: Time for Top-Ranked Airlines ETF?).
First Trust Financials AlphaDEX Fund (FXO - Free Report) – P/E Ratio: 8.01
First Trust Financials AlphaDEX Fund targets the broad financials sector and follows the StrataQuant Financials Index, which employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. Holding 100 stocks in its basket, the ETF has amassed $1.1 billion and charges 61 bps in annual fees.
First Trust Financials AlphaDEX Fund trades in an average daily volume of 111,000 shares and has a Zacks ETF Rank #2.
Invesco DWA Healthcare Momentum ETF (PTH - Free Report) – P/E Ratio: 8.86
Invesco DWA Healthcare Momentum ETF follows the Dorsey Wright Healthcare Technical Leaders Index and holds a basket of 54 U.S. companies. It has AUM of $237.4 million and charges 60 bps in annual fees. Biotechnology takes the largest share at 40.2% while healthcare providers and services, and pharmaceuticals round off the next two with double-digit exposure each.
Invesco DWA Healthcare Momentum ETF trades in a light average daily volume of 7,000 shares and has a Zacks ETF Rank #2.
Invesco S&P MidCap Value with Momentum ETF (XMVM - Free Report) – P/E Ratio: 10.77
Invesco S&P MidCap Value with Momentum ETF follows the S&P MidCap 400 High Momentum Value Index, which is composed of securities in the S&P MidCap 400 Index having both the highest value scores and momentum scores. It holds 81 stocks in its basket with key holdings in financials, materials, consumer discretionary, and industrials.
Invesco S&P MidCap Value with Momentum ETF has accumulated $180.5 million in its asset base while trading in a volume of 15,000 shares per day, on average. The fund charges 39 bps in annual fees and has a Zacks ETF Rank #2.