Buy These ETFs To Profit From Amazon’s Big Quarter (RTH)

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October 30, 2017 6:15am NYSE:RTH

From Zacks: After the closing bell on Thursday last week, online e-commerce behemoth Amazon (AMZN– Free Report) came up with blowout Q3 results with a stupendous earnings beat of 5100% and a positive outlook for the holiday quarter.


Q3 Results in Detail

The company reported earnings per share of 52 cents, trumping the Zacks Consensus Estimate of a penny and remaining unchanged year over year. Revenues climbed 34% year over year to $43.7 billion and topped our estimate of $42.21 billion (read: E-Commerce Face-Off: Wal-Mart Vs. Amazon ETFs).

Robust results were credited to the fast-growing cloud computing business, the acquisition of organic grocer Whole Foods and annual Prime Day sales. Revenues from the cloud computing business — Amazon Web Services (AWS) — rose 42% year over year to $4.6 billion while Whole Foods Market generated revenues of $1.3 billion after being acquired on Aug 28. The third annual Prime Day 2017 held in July was a record for Amazon, with sales jumping 60% year over year.

For the holiday quarter, the company expects revenues to grow 28-38% to $56-$60.5 billion. The high end is above the Zacks Consensus Estimate of $58.93 billion, which represents 34.73% growth. Operating income is expected in the range of $300 million to $1.65 billion.

Amazon has a Zacks Rank #4 (Sell) and a dismal Industry Rank in the bottom 38%, it has a top Growth and Momentum Style Score of A each, suggesting the stock is primed for future growth.

Market Impact

Based on a blockbuster earnings beat and an optimistic outlook, shares of AMZN spiked as much as 8% in aftermarket hours that helped it to reclaim its $1,000 mark. Solid trading in the stock will definitely continue in the ETF world, especially for the funds with the double-digit allocation to this Internet giant.

Below we have highlighted some of those that would be in focus in the coming days and could see some upside post AMZN results. These funds have a solid Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), suggesting continued upside:

VanEck Vectors Retail ETF (RTH – Free Report)

This fund provides exposure to the 26 largest retail firms by tracking the MVIS US Listed Retail 25 Index. Of these, AMZN takes the top position in the basket with 16.2% share. The ETF has a certain tilt toward specialty retail, which accounts for 31% of the portfolio with 31%, while Internet direct marketing (21%), hypermarkets (12%), departmental stores (10%) and healthcare services (10%) round off the next four spots. The product has amassed $50.7 million in its asset base and charges 35 bps in annual fees. Volume is light as it exchanges nearly 11,000 shares per day. RTH has a Zacks ETF Rank #2 with a Medium risk outlook (read: Profit from Retailers’ Defaults With These ETFs).

Consumer Discretionary Select Sector SPDR Fund (XLY – Free Report)

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of nearly $11.4 billion and average daily volume of around 4.1 million shares. Holding 84 securities in its basket, Amazon takes the top spot with 15% of assets. Media dominates about one-fourth of the portfolio while Internet & direct marketing retail, specialty retail, and hotels restaurants and leisure round off the next three spots with a double-digit allocation each. The fund charges 0.14% in expense ratio and has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares U.S. Consumer Services ETF (IYC – Free Report)

This ETF provides targeted exposure to domestic consumer services’ stocks by tracking the Dow Jones U.S. Consumer Services Index. It holds 168 stocks in its basket with Amazon being the top firm holding 12.5% share. In terms of industrial exposure, retailing makes up the largest share with 38.9%, followed by media (22.8%), consumer services (17%), and foods & staples retailing (12.8%). The fund has amassed $648.3 million in its asset base while trades in moderate volumes of 52,000 shares a day on average. It charges 44 bps in annual fees from investors and has a Zacks ETF Rank #3 with a Medium risk outlook.

Fidelity MSCI Consumer Discretionary Index ETF (FDIS – Free Report)

This fund tracks the MSCI USA IMI Consumer Discretionary Index, holding 357 stocks in its basket. Of these, AMZN takes the top spot with 12.2% share. Media is the top sector with 22.4% share, followed by Internet & direct marketing retail (19.3%), specialty retail (16.6%) and hotels restaurants & leisure (16.3%). The product has amassed $286.4 million in its asset base while trades in a moderate volumes of around 54,000 shares a day on average. It charges 8 bps in annual fees from investors and has a Zacks ETF Rank #3 with a Medium risk outlook (read: all the Consumer Discretionary ETFs here).

iShares Edge MSCI Multifactor Consumer Discretionary ETF (CNDF – Free Report)

This ETF has attracted $2.8 million in its asset base since its debut in May last year and trades in a meager volume of under 500 shares. It targets companies that have the potential to outperform the broad U.S. consumer discretionary sector and tracks the MSCI USA Consumer Discretionary Diversified Multiple-Factor Capped Index. Holding 44 stocks in its basket, Amazon is the top firm accounting for 12.2% of the portfolio. The fund is skewed toward retailing at 40.5% while consumer durables, media, and consumer services round off the next three spots with a double-digit exposure each. CNDF charges 35 bps in fees per year and has a Zacks ETF Rank #3.

Vanguard Consumer Discretionary ETF (VCR – Free Report)

This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 371 stocks in its basket. Of these, Amazon occupies the top position with 12.1% allocation. Internet & direct marketing retail, cable & satellite, movies & entertainment and restaurants are the top four sectors. VCR charges investors 10 bps in annual fees while volume is moderate at nearly 63,000 shares a day. The product has managed about $2.1 billion in its asset base and has a Zacks ETF Rank #2 with a Medium risk outlook (read: 6 ETFs Set to Win on Trump’s Tax Reform).

The VanEck Vectors Retail ETF (RTH) was unchanged in premarket trading Monday. Year-to-date, RTH has gained 8.10%, versus a 16.36% rise in the benchmark S&P 500 index during the same period.

RTH currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #16 of 39 ETFs in the Consumer-Focused ETFs category.


This article is brought to you courtesy of Zacks Research.


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