Sector ETFs Primed To Benefit From Strong Q2 Earnings

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August 21, 2018 6:15am NYSE:XLE

From Zacks: As the Q2 reporting cycle is drawing to a close, investors must be interested in finding out the performance of the Zacks classified 16 sectors of the S&P 500.


While such performance evaluation normally brings attention to the bottom line, sales growth demands equal attention. We’ll tell you why.

Investors should note that sales are harder to be influenced in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak of its core strength. But it is harder for a company to mold its revenue figure.

So far, 91.4% of the S&P 500 market cap and 90.4% of the companies have come up with their second-quarter 2018 reports. Total earnings for the second quarter are expected to grow 25.5% from the same period last year on 10.2% higher revenues, per the Earnings Trends issued on Aug 9, 2018. Around 72.3% of the companies beat on the top line while 79% surpassed earnings estimates.

Below, we highlight five sectors and their related stocks that could be used to book some profits on double-digit revenue growth potential.

Materials

The sector is expected to witness the highest revenue growth of 27.6% in the ongoing earnings season. On top of it, about 72.2% companies beat on revenue estimates. The materials sector is best positioned to take advantage of President Trump’s fiscal reflation. Moreover, the President’s “America First” push means more manufacturing in the U.S. territory, which should create greater need for materials. This makes Materials Select Sector SPDR ETF (XLB – Free Report) an intriguing pick (read: Material ETFs Gaining on Solid Q2 Earnings).

Construction

The sector is expected to record 26.2% revenue growth in Q2, with 91.7% companies beating revenue estimates. After all, Trump’s pro-industrial agenda and upbeat U.S. economic growth gave a boost to the sector. This makes Invesco Dynamic Building & Construction Portfolio (PKB – Free Report) worth a look.

Energy

2018 has proved to be nice year for the oil patch. U.S. sanctions against Iran and OPEC output cut deal mainly boosted the price. The energy sector logged 22.7% expansion in revenues in Q2 of 2018, the third highest among the Zacks classified 16 sectors under the S&P 500 index. Around 71% of the companies registered revenue beat. VanEck Vectors Oil Refiners ETF (CRAK – Free Report) can be watched in this regard.

Retail

The U.S. retail sector is back. Along with the growing acceptance of online retailing, department stores have also started to fare better. The sector logged 14.3% revenue growth while 72.2% companies surpassed revenue estimates. Investors can take a look at VanEck Vectors Retail ETF (RTH – Free Report) (read: Here’s Why the Rally in Retail ETFs Will Continue in 2H).

Technology

The technology sector has been positioned strongly thanks to improving economic and industry fundamentals and Trump’s corporate tax reform. About 77.8% of the companies have reported results so far. The sector is expected to witness revenue growth of 12.8% in Q2 revenues, with 83.7% of the companies exceeding sales estimates. This can be a reason to look at Vanguard Information Technology ETF (VGT – Free Report) (read: Spread of ETFs to Taste Apple’s Trillion Dollar Market Cap).


The Energy Select Sector SPDR ETF (XLE) was unchanged in premarket trading Tuesday. Year-to-date, XLE has gained 1.88%, versus a 7.48% rise in the benchmark S&P 500 index during the same period.

XLE currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 37 ETFs in the Energy Equities ETFs category.


This article is brought to you courtesy of Zacks Research.


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