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The Q1 earnings season has kicked off with a few major banks set to report this week. Earnings for the S&P 500 index are expected to grow 16% from the same period last year on 7.4% higher revenues. Earnings growth is much higher than the Q4 growth of 13.5% and represents the highest quarterly earnings growth in seven years (read: 5 Ultra-Cheap Growth ETFs for a Large-Cap Play This Spring).
Additionally, the revision trend has been impressive with earnings estimates moving up from 10.9% growth at the start of the period. In particular, estimates for 13 of the 16 Zacks sectors have gone up with basic materials, energy, construction, and industrial products sectors witnessing the most positive revisions in percentage terms. And thus, these sectors are likely to be the strongest contributors this earnings season.
Like the last three reporting cycles, energy remained at the top spot and has the strongest growth projection of 60.2% for Q1. This is followed by earnings growth of 42.2% for basic materials, 18.8% for construction, 23.9% for industrial products and 20.7% for technology.
Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the Q1 earnings season unfolds. Each of these ETFs and stocks have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). For stocks, we have added the extra flavor of a positive Earnings ESP. This is because stocks with this combination have a 70% chance of beating estimates when their earnings are released, and a VGM Style Score of B or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Energy
Energy Select Sector SPDR (XLE - Free Report) : This is the largest and most popular ETF in the energy space with AUM of $17.4 billion. Expense ratio comes in at 0.13%. The fund follows the Energy Select Sector Index and holds 31 securities in its basket. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 86% of the portfolio while energy equipment & services takes the remainder. The product has a Zacks ETF Rank #3 with a High risk outlook (read: 6 Reasons to Buy These Energy ETFs and Stocks Now).
Pioneer Natural Resources Company : This independent oil and gas exploration and production company in the United States explores for, develops, and produces oil, natural gas liquids (NGLs), and gas. The Zacks Consensus Estimate for the yet-to-be reported quarter has been revised upward from 85 cents to $1.48 over the past 90 days and has an expected growth rate of 492%. It has a Zacks Rank #2 and an Earnings ESP of +3.71%. The stock delivered a positive earnings surprise of 66.92% for the last four quarters. It is scheduled to report earnings results on May 2.
Basic Materials
First Trust Materials AlphaDEX Fund (FXZ - Free Report) : This product follows the StrataQuant Materials Index, holding 52 stocks in its basket. None of the securities holds more than 3.5% share. Chemicals dominates the portfolio with 33.4% of assets while metals & mining, and containers & packaging round off the next two spots with a double-digit allocation each. The fund has accumulated $314.4 million in its asset base and charges 65 bps in annual fees. It has a Zacks ETF Rank #2 with a Medium risk outlook.
Chemours Company (CC - Free Report) : This company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It has a Zacks Rank #2 and an Earnings ESP of +2.72%. The stock saw solid earnings estimate revision of seven cents over the past three months for the to-be-reported quarter and has an expected earnings growth rate of 64%. It also delivered average earnings surprise of 21.47% for the last four quarters. The company is slated to release earnings results on May 3. You can seethe complete list of today’s Zacks #1 Rank stocks here.
Construction
iShares U.S. Home Construction ETF (ITB - Free Report) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 47 stocks with double-digit concentration on the top two firms that account for a combined 25.1% share. The product has amassed $1.8 billion in its asset base and charges 44 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.
Louisiana-Pacific Corporation (LPX - Free Report) : This company manufactures building materials and engineered wood products in the United States, Canada, Chile and Brazil. It has a Zacks Rank #1 and an Earnings ESP of +4.51%. The stock saw solid earnings estimate revision of 21 cents over the past 90 days for the first quarter, representing whopping growth of 103.03%, and delivered a positive earnings surprise of 4.61% for the past four quarters. The company is slated to release earnings results on May 4 (read: Why Housing Stocks & ETFs Can Have a Spring in Their Step).
Industrials
Vanguard Industrials ETF (VIS - Free Report) : This fund follows the MSCI U.S. Investable Market Industrials 25/50 Index and holds 347 stocks in its basket. None of the firms holds more than 6.7% share. Aerospace & defense, industrial conglomerates and industrial machinery are the top three sectors accounting for a double-digit exposure each. The fund has accumulated nearly $3.5 billion in AUM and charges investors 10 bps in annual fees. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: 3 ETFs Likely to Stay Strong Even as Manufacturing Slows).
Timken Company (TKR - Free Report) : This company engineers, manufactures and markets bearings, transmissions, gearboxes, belts, chain and related products, and offers a spectrum of powertrain rebuild and repair services. It has a Zacks Rank #2 and an Earnings ESP of +4.03%. The stock saw solid earnings estimate revision of 12 cents for the yet-to-be-reported quarter in the past three months and has an expected growth rate of 47.27%. For the last four quarter, the positive earnings surprise is 9.61%. The company is slated to release earnings results on Apr 25.
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Bet on These Sector ETFs & Stocks for Q1 Earnings
The Q1 earnings season has kicked off with a few major banks set to report this week. Earnings for the S&P 500 index are expected to grow 16% from the same period last year on 7.4% higher revenues. Earnings growth is much higher than the Q4 growth of 13.5% and represents the highest quarterly earnings growth in seven years (read: 5 Ultra-Cheap Growth ETFs for a Large-Cap Play This Spring).
Additionally, the revision trend has been impressive with earnings estimates moving up from 10.9% growth at the start of the period. In particular, estimates for 13 of the 16 Zacks sectors have gone up with basic materials, energy, construction, and industrial products sectors witnessing the most positive revisions in percentage terms. And thus, these sectors are likely to be the strongest contributors this earnings season.
Like the last three reporting cycles, energy remained at the top spot and has the strongest growth projection of 60.2% for Q1. This is followed by earnings growth of 42.2% for basic materials, 18.8% for construction, 23.9% for industrial products and 20.7% for technology.
Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the Q1 earnings season unfolds. Each of these ETFs and stocks have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). For stocks, we have added the extra flavor of a positive Earnings ESP. This is because stocks with this combination have a 70% chance of beating estimates when their earnings are released, and a VGM Style Score of B or better.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Energy
Energy Select Sector SPDR (XLE - Free Report) : This is the largest and most popular ETF in the energy space with AUM of $17.4 billion. Expense ratio comes in at 0.13%. The fund follows the Energy Select Sector Index and holds 31 securities in its basket. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 86% of the portfolio while energy equipment & services takes the remainder. The product has a Zacks ETF Rank #3 with a High risk outlook (read: 6 Reasons to Buy These Energy ETFs and Stocks Now).
Pioneer Natural Resources Company : This independent oil and gas exploration and production company in the United States explores for, develops, and produces oil, natural gas liquids (NGLs), and gas. The Zacks Consensus Estimate for the yet-to-be reported quarter has been revised upward from 85 cents to $1.48 over the past 90 days and has an expected growth rate of 492%. It has a Zacks Rank #2 and an Earnings ESP of +3.71%. The stock delivered a positive earnings surprise of 66.92% for the last four quarters. It is scheduled to report earnings results on May 2.
Basic Materials
First Trust Materials AlphaDEX Fund (FXZ - Free Report) : This product follows the StrataQuant Materials Index, holding 52 stocks in its basket. None of the securities holds more than 3.5% share. Chemicals dominates the portfolio with 33.4% of assets while metals & mining, and containers & packaging round off the next two spots with a double-digit allocation each. The fund has accumulated $314.4 million in its asset base and charges 65 bps in annual fees. It has a Zacks ETF Rank #2 with a Medium risk outlook.
Chemours Company (CC - Free Report) : This company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It has a Zacks Rank #2 and an Earnings ESP of +2.72%. The stock saw solid earnings estimate revision of seven cents over the past three months for the to-be-reported quarter and has an expected earnings growth rate of 64%. It also delivered average earnings surprise of 21.47% for the last four quarters. The company is slated to release earnings results on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Construction
iShares U.S. Home Construction ETF (ITB - Free Report) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 47 stocks with double-digit concentration on the top two firms that account for a combined 25.1% share. The product has amassed $1.8 billion in its asset base and charges 44 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.
Louisiana-Pacific Corporation (LPX - Free Report) : This company manufactures building materials and engineered wood products in the United States, Canada, Chile and Brazil. It has a Zacks Rank #1 and an Earnings ESP of +4.51%. The stock saw solid earnings estimate revision of 21 cents over the past 90 days for the first quarter, representing whopping growth of 103.03%, and delivered a positive earnings surprise of 4.61% for the past four quarters. The company is slated to release earnings results on May 4 (read: Why Housing Stocks & ETFs Can Have a Spring in Their Step).
Industrials
Vanguard Industrials ETF (VIS - Free Report) : This fund follows the MSCI U.S. Investable Market Industrials 25/50 Index and holds 347 stocks in its basket. None of the firms holds more than 6.7% share. Aerospace & defense, industrial conglomerates and industrial machinery are the top three sectors accounting for a double-digit exposure each. The fund has accumulated nearly $3.5 billion in AUM and charges investors 10 bps in annual fees. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: 3 ETFs Likely to Stay Strong Even as Manufacturing Slows).
Timken Company (TKR - Free Report) : This company engineers, manufactures and markets bearings, transmissions, gearboxes, belts, chain and related products, and offers a spectrum of powertrain rebuild and repair services. It has a Zacks Rank #2 and an Earnings ESP of +4.03%. The stock saw solid earnings estimate revision of 12 cents for the yet-to-be-reported quarter in the past three months and has an expected growth rate of 47.27%. For the last four quarter, the positive earnings surprise is 9.61%. The company is slated to release earnings results on Apr 25.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>