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The Q1 earnings picture improved since the beginning of the quarter on signs of a sharp economic rebound. Total S&P 500 earnings are expected to be up 20.6% from the same period last year on 5.6% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors.

In fact, the earnings projection reflects an improvement from the 12.6% growth expected at the start of Q1 and follows the 3.1% earnings growth in Q4. The positive revisions trend is broad-based, with 10 of the 16 Zacks sectors experiencing positive earnings estimate revision over the last three months. While the energy and auto sectors’ increases have been the biggest in proportional terms, the magnitude of estimate increases are highest for the technology and finance sectors.

Among the 10 sectors with positive earnings growth, autos is expected to be the biggest contributor to the S&P 500 earnings with 203.1% growth. This was followed by basic materials (65.7% earnings growth), finance (50.5%), and retail (41.4%).

Given this, we have highlighted one ETF and one stock from these 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). 

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.

Autos

The auto industry is benefiting from the rapid vaccinations, unprecedented stimulus and reopening of the economies that have boosted demand for everyday travel, leading to spike in auto sales. Additionally, persistent lower interest rates are encouraging new-car buying, pushing more consumers to avail loans.

First Trust NASDAQ Global Auto ETF (CARZ - Free Report): This fund offers a pure-play global exposure to 33 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has moderate concentration across components as each of these make up for less than 8.8% share. CARZ has a lower level of $76.1 million in AUM and trades in a small average daily trading volume of about 23,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with High risk outlook.

Polaris Inc. (PII - Free Report): This company designs, engineers and manufactures off-road and on-road vehicles. The stock has a Zacks Rank #2 and an Earnings ESP of +12.25%. The Zacks Consensus Estimate for the to-be-reported quarter has been revised upward by a couple of cents over the past 30 days and has expected 600% earnings growth. Additionally, the company delivered a positive four-quarter earnings surprise of 25.63%, on average, and is scheduled to report earnings on Apr 27, 2021.

Materials

Being cyclical in nature, basic material companies are expected to gain from the speedy economic recovery backed by rapid vaccination and more stimulus. This will lead to higher demand for several types of products and services in the economy.

Materials Select Sector SPDR (XLB - Free Report): This is the most popular material ETF that follows the Materials Select Sector Index. It manages about $7.4 billion in its asset base and trades in volumes as heavy as around 7.4 million shares. In total, the fund holds about 28 securities in its basket with heavy concentration on the top firm and charges 13 bps in fees per year from investors. In terms of industrial exposure, chemicals dominates the portfolio with 69.2% share while containers & packaging, and metals & mining round off the top three positions. The product has a Zacks ETF Rank #2 with a Medium risk outlook.

Dow Inc. (DOW - Free Report): This material science company provides a world-class portfolio of advanced, sustainable, and leading-edge products. The stock has a Zacks Rank #1 and an Earnings ESP of +6.56%. The stock has seen positive earnings estimate revision of a couple of cents for the to-be-reported quarter over the past 7 days and has an expected earnings growth rate of 81.4%. Its trailing four-quarter earnings surprise is 20.99%, on average. The company is slated to release earnings results on Apr 22 before the opening bell.

Finance

Surging yields and an improving economy has been providing a boost to the financial sector. Rising rates are highly profitable for the sector, as the steepening yield curve would bolster profits for banks, insurance companies, discount brokerage firms and asset managers.

SPDR S&P Regional Banking ETF (KRE - Free Report): This is one of the largest and most popular ETFs in the banking space with AUM of $4.6 billion and an average daily volume of 8.3 million shares. The product follows the S&P Regional Banks Select Industry Index, charging investors 35 basis points a year in fees. Holding 133 securities in its basket, the fund is widely spread out across each security with an equal-weight approach of around 2%. The fund carries a Zacks ETF Rank #2 with a High risk outlook.

The Goldman Sachs Group, Inc. (GS - Free Report): It is a leading global financial holding company providing investment banking, securities, and investment management services to a diversified client base. The stock has a Zacks Rank #1 and an Earnings ESP of +3.83%. The stock saw solid earnings estimate revision of $1.80 for the to-be-reported quarter over the past month and represents year-over-year growth of 206.1%. The company’s trailing four-quarter positive earnings surprise is 53.47% on average. The company is slated to release earnings results on Apr 14 before the opening bell.

Retail

Americans are growing optimistic about economic recovery, leading to increased spending and higher retail sales. This is especially true as the University of Michigan’s final sentiment index climbed to a pandemic high of 84.9 in late March from a preliminary reading of 83. The Conference Board on consumer confidence index also jumped to 109.7 in March — the highest level since the onset of the pandemic in March 2020.

SPDR S&P Retail ETF (XRT - Free Report): With AUM of $657.5 million, this product targets the broad retail sector by tracking the S&P Retail Select Industry Index. It holds 102 securities in its basket with key holdings in Internet & direct marketing retail, apparel retail, automotive retail, and specialty stores. The fund charges 35 bps in annual fees and trades in heavy volume of 4 million shares per day on average. It has a Zacks ETF Rank #2 with a Medium risk outlook.

Tractor Supply Company (TSCO - Free Report): It is the largest retail farm and ranch store chain in the United States. The company focuses on recreational farmers and ranchers as well as tradesmen and small businesses. The stock has a Zacks Rank #2 and an Earnings ESP of +4.50%. The Zacks Consensus Estimate for the to-be-reported quarter has been revised upward by a penny over the past 30 days and has expected 35.2% earnings growth. Additionally, the company delivered a positive four-quarter earnings surprise of 9.35%, on average, and is scheduled to report earnings on Apr 22.