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5 ETFs & Stocks From the Favorite Sectors of Q3 Earnings

The Q3 earnings season is set to kick off this week with the banking sector slated to report numbers. Although Q3 earnings growth is expected to decelerate significantly from the breakneck pace in the first half, the earnings picture remains strong. Total S&P 500 earnings are expected to be up 26.1% from the same period last year on 13.9% higher revenues.

The earnings projection reflects the same growth expected at the start of Q3 despite the rising cost pressures amid supply-chain disruptions and labor/material shortages. This would follow the 95.0% earnings growth on 25.3% higher revenues in Q2.

Of the 16 Zacks sectors, 13 are expected to earn more relative to the year-ago quarter as autos and utilities are expected to report a decline in earnings. Transportation and energy will likely see huge earnings growth from the year-ago-quarter as transportation incurred loss of $1.8 billion and energy barely reported earnings. The other 11 sectors are expected to witness positive year-over-year earnings growth. Basic materials is expected to be the biggest contributor to S&P 500 earnings with 141.4% growth. This is likely to be followed by industrial products (25.7%), technology (21.2%) and finance (20.2%).

Given this, we have highlighted one ETF and one stock from the five sectors that could make great plays as the earnings season unfolds. These ETFs and stocks have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

For stocks, we have added the extra criterion of a positive Earnings ESP. The combination of a Zacks Rank #3 or better and a positive ESP increases the odds of an earnings beat by 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Transportation

Travel has rebounded strongly with more Americans getting vaccinated, business and economies have reopened, consumer confidence is growing. The transport sector is expected to post strong results on the back of these positives.

iShares U.S. Transportation ETF IYT: The ETF tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 48 securities. Within the transportation sector, railroads, and air freight and logistics take the top two spots with 33.3% and 26.7% share, respectively, while trucking (22.1%) and airlines (16.6%) round off the next two. The fund has $1.6 billion in AUM and trades in a good trading volume of around 201,000 shares a day. It charges 41 bps in fees per year and has a Zacks ETF Rank #2 with a High risk outlook (read: 5 ETFs to Cash In On Record High U.S. Household Net Worth).

TFI International Inc. TFII: This company is in the transportation and logistics industry. It identifies strategic acquisitions and manages a network of subsidiaries. The stock has a Zacks Rank #2 and an Earnings ESP of +7.84%. The Zacks Consensus Estimate for the to-be-reported quarter has been revised upward by a penny over the past seven days and has 38.3% expected earnings growth. Additionally, the company delivered a four-quarter earnings surprise of 28.12%, on average, and is scheduled to report earnings on Oct 28.

Energy

The energy sector has been benefiting from higher oil prices amid global supply concerns in crude, natural gas and coal markets. Added to the oil price strength is growing fuel demand. Overall demand for fuel has rebounded to the pre-pandemic levels.

Vanguard Energy ETF VDE: This fund manages $5.5 billion in its asset base and provides exposure to a basket of 95 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees a good volume of about 1.1 million shares and charges 10 bps in annual fees. VDE has a Zacks ETF Rank #2 with a High risk outlook (read: 5 Best ETFs & Stocks of the Top Performing Energy Sector).

ConocoPhillips COP: It is primarily involved in the exploration and production of oil and natural gas. The stock has a Zacks Rank #1 and an Earnings ESP of +0.69%. The stock saw solid earnings estimate revision of 6 cents for the to-be-reported quarter over the past seven days and represents year-over-year growth of 564.5%. The company’s trailing four-quarter positive earnings surprise is 8.29% on average. The company is slated to release earnings results on Nov 12 before the opening bell.

Materials

The materials sector, which tends to be the most sensitive to global economic growth expectations, has been performing well with economic recovery gathering pace. The increase in prices of various types of raw materials added to the strength.

Materials Select Sector SPDR XLB: This is the most popular material ETF that follows the Materials Select Sector Index. It manages about $7.5 billion in its asset base and trades in volumes as heavy as around 6.6 million shares. In total, the fund holds about 28 securities in its basket and charges 12 bps in fees per year from investors. In terms of industrial exposure, chemicals dominates the portfolio with 68.7% share while metals & mining and containers & packaging round off the top three positions. The product has a Zacks ETF Rank #1 with a Medium risk outlook.

Teck Resources Ltd TECK: This company is engaged in exploring for acquiring, developing and producing natural resources in Asia, Europe and North America. The stock has a Zacks Rank #1 and an Earnings ESP of +9.27%. The stock has seen positive earnings estimate revision of 5 cents for the to-be-reported quarter over the past 30 days and delivered a four-quarter earnings surprise of 9.05%, on average. Its earnings are estimated to grow to 478% for the to-be-reported quarter. The company is slated to release earnings results on Oct 26 after the marker close.

Industrials

The optimism surrounding the reopening of global economies and increasing demand is painting a rosy picture for the cyclical sectors like industrials (read: Will Industrial ETFs Make Good Bets? Let's Find Out).

iShares U.S. Industrials ETF IYJ: This product gives exposure to U.S. companies that produce goods used in construction and manufacturing by tracking Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index. It is tilted toward capital goods’ companies at 40.4% while software services and transportation round off the next two spots with double-digit exposure each. The fund has an AUM of $1.6 billion and an average daily volume of around 80,000 shares. It charges 41 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

Berry Global Group Inc. BERY: This company manufactures and distributes nonwoven specialty materials, engineered materials and consumer packaging products in the market. The stock has a Zacks Rank #2 and an Earnings ESP of +1.78%. It has witnessed no earnings estimate revision over the past 30 days and delivered a four-quarter earnings surprise of 17.67% on average. The company’s earnings are expected to decline 3.1% and is scheduled to report earnings on Nov 18.

Technology

The global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, IoT, wearables, VR headsets, drones, virtual reality, AI, machine learning, digital communication and 5G technology will continue to drive the sector higher.

Vanguard Information Technology ETF VGT: This fund manages $49.1 billion in its asset base and tracks the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is solid at nearly 532,000 shares. It is a home to 342 stocks and has a Zacks ETF Rank #1 with a Medium risk outlook.

Texas Instruments Incorporated TXN: It is an original equipment manufacturer of analog, mixed signal and digital signal processing integrated circuits. The stock has a Zacks Rank #2 and an Earnings ESP of +9.22%. The stock saw positive earnings estimate revision of couple of cents for the to-be-reported quarter over the past 7 days and represents year-over-year growth of 42.1%. The company’s trailing four-quarter positive earnings surprise is 20.25% on average. The company is slated to release earnings results on Oct 26 after the closing bell.


Tech IPOs With Massive Profit Potential

In the past few years, many popular platforms and like Uber and Airbnb finally made their way to the public markets. But the biggest paydays came from lesser-known names.

For example, electric carmaker X Peng shot up +299.4% in just 2 months. Think of it this way…

If you had put $5,000 into XPEV at its IPO in September 2020, you could have cashed out with $19,970 in November.

With record amounts of cash flooding into IPOs and a record-setting stock market, this year’s lineup could be even more lucrative.

See Zacks Hottest Tech IPOs Now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Texas Instruments Incorporated (TXN): Free Stock Analysis Report
 
ConocoPhillips (COP): Free Stock Analysis Report
 
Berry Global Group, Inc. (BERY): Free Stock Analysis Report
 
Materials Select Sector SPDR ETF (XLB): ETF Research Reports
 
iShares U.S. Transportation ETF (IYT): ETF Research Reports
 
Vanguard Energy ETF (VDE): ETF Research Reports
 
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
Teck Resources Ltd (TECK): Free Stock Analysis Report
 
TFI International Inc. (TFII): Free Stock Analysis Report
 
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