4 Sector ETF And Stock Picks To Bet On Ahead Of Q4 Earnings

The fourth-quarter reporting cycle is around the corner with a few major banks set to report next week. Earnings for the S&P 500 Index are expected to grow 10.7% year over year on 5.2% higher revenues. This represents a notable deceleration from the average 25% earnings growth in the first three quarters of 2018.

In fact, the magnitude of earnings revision has moved down from 15.9% at the start of the quarter, representing higher estimate cuts than the preceding four quarters. The downtrend can be attributed to uncertain global economic backdrop that compounded with the market’s pre-existing worries about Fed policy and global trade.

However, seven of the 16 Zacks sectors are expected to post double-digit earnings growth with energy remaining the top contributor with 64.3% earnings growth. This is followed by earnings growth expectation of 26.6% for construction, 22.7% for transportation, 19.6% for finance and 19.2% for retail.

Energy

Energy Select Sector SPDR (XLE - Free Report) : This is the largest and most-popular ETF in the energy space with AUM of $14.4 billion. Its expense ratio comes is 0.13%. The fund follows the Energy Select Sector Index and holds 30 securities in its basket. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 89.6% of the portfolio, while energy equipment & services takes the remainder. The product has a Zacks ETF Rank #2 with a High risk outlook.

Black Stone Minerals L.P. (BSM - Free Report) : This is one of the leading owners of oil and natural gas mineral primarily in the United States. The Zacks Consensus Estimate for the to-be reported quarter has been revised upward from 26 cents to 29 over the past 60 days. The company has an expected growth rate of 93.33%. It currently carries a Zacks Rank #2 and has an Earnings ESP of +8.14%. The company is scheduled to report earnings results on Feb 25.

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 48 stocks with double-digit concentration on the top two firms that account for 13.7% share each. The product has amassed $972.2 million in its asset base and charges 43 basis points (bps) in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.

Taylor Morrison Home Corporation (TMHC - Free Report) : This homebuilder and land developer is engaged in building single-family detached and attached homes for first-time buyers, move-up families to luxury and active adult customers. It has a Zacks Rank #3 and an Earnings ESP of +48.07%. The stock saw earnings estimate revision of a penny over the past 60 days for the fourth quarter, representing a year over year decline of 39%. It delivered a positive earnings surprise of 15.22% in the past four quarters. The company is slated to release earnings results on Feb 6.

Transportation

iShares Dow Jones Transportation Average Fund (IYT - Free Report) : This ETF follows the Dow Jones Transportation Average Index and offers exposure to the broad transportation sector. The fund holds a small basket of 20 stocks with railroads, air freight & logistics, airlines and trucking taking the top four spots. The fund has accumulated $603.3 million in its asset base and charges 43 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.

Hub Group Inc. (HUBG - Free Report) : This is a transportation management company that provides multi-modal solutions throughout North America, including intermodal, truck brokerage, dedicated and logistics services. It has a Zacks Rank #2 and an Earnings ESP of +3.05%. The Zacks Consensus Estimate for the to-be reported quarter is pegged at 90 cents, representing year- over-year decline of 69.9%. The stock has delivered average earnings surprise of 136.4% in the last four quarters. The company is slated to release earnings results on Feb 14.

Finance

Financial Select Sector SPDR Fund (XLF - Free Report) : This fund follows the Financial Select Sector Index and holds 68 stocks in its basket with higher concentration on the top two firms. Banks dominate the fund’s portfolio with 43.3% while capital markets, insurance and diversified financial services round off the next three spots. The fund has accumulated nearly $23.8 billion in AUM and charges investors 13 bps in annual fees. It has a Zacks ETF Rank #1 with a Medium risk outlook.

The Progressive Corporation (PGR - Free Report) : This company provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. It has a Zacks Rank #1 and an Earnings ESP of +0.89%. The stock saw positive earnings estimate revision of 4 cents for the to-be-reported quarter in a month and has an expected growth rate of 27.85%. For the last four quarter, the positive earnings surprise is 13.48%. The company is slated to release earnings results on Jan 23.