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Sector ETFs & Stocks to Bet On This Earnings Season
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The Q2 earnings season will officially kick off next week with a few major banks set to report quarterly results. Like last quarter, the earnings picture looks bleak this time also thanks to a combination of tough comparisons, moderating economic growth and escalation in trade tariff (read: S&P 500 Hits New High to Start 2H: Top-Ranked ETFs to Buy).
S&P 500 earnings are expected to decline 2.9% from the same period last year despite 4.3% higher revenues while net margins are likely to witness a 90-basis-point compression. Earnings growth is expected to be negative for eight of the 16 Zacks sectors, with basic materials and conglomerates being the biggest drags.
Given the miserable picture, investors could place their bet on sectors that are expected to post positive earnings growth. Energy is expected to post strong earnings growth of 5.6%, followed by financials (3.2%), business services (2.9%), transportation (2.7%) and utilities (2.6%).
Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the 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 criteria of a VGM Score of B or better and a positive Earnings ESP. Stocks with a Zacks Rank #3 or better and a positive ESP have 70% chance of beating estimates.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Energy
Vanguard Energy ETF (VDE - Free Report) : This fund manages about $3.4 billion in its asset base and provides exposure to a basket of 139 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees a good volume of about 295,000 shares and charges 10 bps in annual fees. VDE carries a Zacks ETF Rank #3 with a High risk outlook (read: Oil ETFs Amid Tug of War Between OPEC Deal & Trade Tensions).
Enterprise Products Partners L.P. (EPD - Free Report) : This is a leading integrated provider of processing and transportation services to producers of Natural Gas Liquids (NGLs) and consumers of NGL products. The stock has a Zacks Rank #2 and an Earnings ESP of +3.63%. The Zacks Consensus Estimate for the to-be reported quarter has been revised upward by a couple of cents over the past 60 days and represents a modest 10.87% earnings growth. Additionally, the company has delivered positive earnings surprise of 17.03% over the past four quarters and is scheduled to report earnings on Aug 7.
Financials
Financial Select Sector SPDR Fund (XLF - Free Report) : This fund follows the Financial Select Sector Index and holds 68 stocks in its basket. Banks dominate the fund’s portfolio with 41.6% while capital markets, insurance and diversified financial services round off the next three spots. The fund has accumulated nearly $25 billion in AUM and charges investors 13 bps in annual fees. It trades in volumes of 50.3 million shares on average per day and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Legg Mason Inc. : It is a holding company which, through its subsidiaries, is principally engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. The stock has a Zacks Rank #1 and an Earnings ESP of +9.76%. It saw positive earnings estimate revision of 3 cents over the past 60 days for the to-be reported quarter but has an estimated year-over-year growth decline rate of 17.50%. The company delivered a positive earnings surprise of 9.51% in the past four quarters. The company is slated to release earnings on Jul 24. You can see the complete list of today’s Zacks #1 Rank stocks here.
Transportation
U.S. Global Jets ETF (JETS - Free Report) : This fund 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. In total, the product holds 34 securities that are heavily concentrated on the top four firms. The fund has gathered $71.5 million in its asset base, while seeing a moderate trading volume of nearly 30,000 shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: 5 ETFs to Profit From July Fourth Celebrations).
United Airlines Holdings Inc (UAL - Free Report) : Through its subsidiaries, it provides air transportation services in North America, Asia, Europe, the Middle East, and Latin America. The stock has a Zacks Rank #1 and an Earnings ESP of +10.99%. Though the Zacks Consensus Estimate for the to-be reported quarter has been revised downward by 9 cents over the past two months, its earnings are estimated to grow 24.1%. The stock has delivered average earnings surprise of 14.04% in the last four quarters. The company is slated to release earnings results on Jul 16.
Utilities
Utilities Select Sector SPDR (XLU - Free Report) : With AUM of $10.1 billion, this fund provides exposure to a small basket of 28 securities by tracking the Utilities Select Sector Index. Electric utilities take the top spot in terms of sectors at 60.3%, closely followed by multi utilities (33.1%). The product charges 13 bps in annual fees and sees heavy volume of around 16.8 million shares on average. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Unbeatable ETF Strategies for 2nd Half).
Telephone and Data Systems Inc. (TDS - Free Report) : It provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services connections nationwide through its businesses, U.S. Cellular, TDS Telecom, OneNeck IT Solutions, and BendBroadband. It has a Zacks Rank #1 and an Earnings ESP of +9.68%. The stock saw positive earnings estimate revision of a penny for the to-be-reported quarter over the past two months and has an expected growth rate of 6.90%. For the last four quarters, the average positive earnings surprise is 28.12%. The company is slated to release earnings results on Aug 2.
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Sector ETFs & Stocks to Bet On This Earnings Season
The Q2 earnings season will officially kick off next week with a few major banks set to report quarterly results. Like last quarter, the earnings picture looks bleak this time also thanks to a combination of tough comparisons, moderating economic growth and escalation in trade tariff (read: S&P 500 Hits New High to Start 2H: Top-Ranked ETFs to Buy).
S&P 500 earnings are expected to decline 2.9% from the same period last year despite 4.3% higher revenues while net margins are likely to witness a 90-basis-point compression. Earnings growth is expected to be negative for eight of the 16 Zacks sectors, with basic materials and conglomerates being the biggest drags.
Given the miserable picture, investors could place their bet on sectors that are expected to post positive earnings growth. Energy is expected to post strong earnings growth of 5.6%, followed by financials (3.2%), business services (2.9%), transportation (2.7%) and utilities (2.6%).
Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the 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 criteria of a VGM Score of B or better and a positive Earnings ESP. Stocks with a Zacks Rank #3 or better and a positive ESP have 70% chance of beating estimates.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Energy
Vanguard Energy ETF (VDE - Free Report) : This fund manages about $3.4 billion in its asset base and provides exposure to a basket of 139 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees a good volume of about 295,000 shares and charges 10 bps in annual fees. VDE carries a Zacks ETF Rank #3 with a High risk outlook (read: Oil ETFs Amid Tug of War Between OPEC Deal & Trade Tensions).
Enterprise Products Partners L.P. (EPD - Free Report) : This is a leading integrated provider of processing and transportation services to producers of Natural Gas Liquids (NGLs) and consumers of NGL products. The stock has a Zacks Rank #2 and an Earnings ESP of +3.63%. The Zacks Consensus Estimate for the to-be reported quarter has been revised upward by a couple of cents over the past 60 days and represents a modest 10.87% earnings growth. Additionally, the company has delivered positive earnings surprise of 17.03% over the past four quarters and is scheduled to report earnings on Aug 7.
Financials
Financial Select Sector SPDR Fund (XLF - Free Report) : This fund follows the Financial Select Sector Index and holds 68 stocks in its basket. Banks dominate the fund’s portfolio with 41.6% while capital markets, insurance and diversified financial services round off the next three spots. The fund has accumulated nearly $25 billion in AUM and charges investors 13 bps in annual fees. It trades in volumes of 50.3 million shares on average per day and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Legg Mason Inc. : It is a holding company which, through its subsidiaries, is principally engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. The stock has a Zacks Rank #1 and an Earnings ESP of +9.76%. It saw positive earnings estimate revision of 3 cents over the past 60 days for the to-be reported quarter but has an estimated year-over-year growth decline rate of 17.50%. The company delivered a positive earnings surprise of 9.51% in the past four quarters. The company is slated to release earnings on Jul 24. You can see the complete list of today’s Zacks #1 Rank stocks here.
Transportation
U.S. Global Jets ETF (JETS - Free Report) : This fund 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. In total, the product holds 34 securities that are heavily concentrated on the top four firms. The fund has gathered $71.5 million in its asset base, while seeing a moderate trading volume of nearly 30,000 shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: 5 ETFs to Profit From July Fourth Celebrations).
United Airlines Holdings Inc (UAL - Free Report) : Through its subsidiaries, it provides air transportation services in North America, Asia, Europe, the Middle East, and Latin America. The stock has a Zacks Rank #1 and an Earnings ESP of +10.99%. Though the Zacks Consensus Estimate for the to-be reported quarter has been revised downward by 9 cents over the past two months, its earnings are estimated to grow 24.1%. The stock has delivered average earnings surprise of 14.04% in the last four quarters. The company is slated to release earnings results on Jul 16.
Utilities
Utilities Select Sector SPDR (XLU - Free Report) : With AUM of $10.1 billion, this fund provides exposure to a small basket of 28 securities by tracking the Utilities Select Sector Index. Electric utilities take the top spot in terms of sectors at 60.3%, closely followed by multi utilities (33.1%). The product charges 13 bps in annual fees and sees heavy volume of around 16.8 million shares on average. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: 5 Unbeatable ETF Strategies for 2nd Half).
Telephone and Data Systems Inc. (TDS - Free Report) : It provides wireless; cable and wireline broadband, TV and voice; and hosted and managed services connections nationwide through its businesses, U.S. Cellular, TDS Telecom, OneNeck IT Solutions, and BendBroadband. It has a Zacks Rank #1 and an Earnings ESP of +9.68%. The stock saw positive earnings estimate revision of a penny for the to-be-reported quarter over the past two months and has an expected growth rate of 6.90%. For the last four quarters, the average positive earnings surprise is 28.12%. The company is slated to release earnings results on Aug 2.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>