Five Sector ETFs & Stocks With Revenue Growth Potential

The ongoing fourth-quarter earnings season has the same old moderate-to-downbeat flavor of the last few quarters. Estimates too have been on a downtrend, replicating the last three years. Total S&P 500 earnings in Q4 are likely to fall 7.8% year over year on 4.7% lower revenues as per the Zacks Earnings Trends issued on January 13.

While earnings normally remain the sole attention of investors, we would like to emphasize that sales also deserve equal attention. This is because; 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 which do not speak for its core strength. But it is harder for a company to mold its revenue figure.

Plus, the market has been extremely choppy since the beginning of the New Year, thanks to a horrendous equity sell-off in China and its contagion to other risky assets, global growth worries, upheaval in the energy space and speculation over further Fed tightening. It is in such a downbeat backdrop that the Q4 earnings season has commenced this year. In fact, only five of the 16 Zacks sectors are expected to post positive revenue gains from the year-earlier period this season.

Below, we highlight those five sectors and the related ETFs that could be used to book some profits in this volatile market. Each sector has positive revenue growth estimates for Q4 and offers intriguing fundamentals to protect investors’ portfolios in a tottering global investing backdrop. Also, we highlight a stock from each sector which saw strong revenue growth in the last fiscal year, compelling price/sales ratio and a Zacks Rank #1 (Strong Buy):


iShares U.S. Medical Devices ETF (IHI)

Medical or Health Care sector appears the best positioned with an 8.7% revenue growth estimate, the best in the universe of 16 S&P sectors categorized by Zacks. Rise in merger and acquisitions, Affordable Care Act, an aging global population and the sector’s non-cyclical nature amid uncertainty makes the sector a true star.

Though the broader health care sector may not be in a great shape to start 2016, the blow was mainly due to the biotech meltdown. The medical devices area has been less beaten down. Moreover, health care is said to be recession-proof in nature (read: Biotech On the Edge? Try Better-Performing Health Care ETFs).

As a result, medical devices ETFs like IHI may log decent gains ahead. The sector sell-off also made the product fairly valued. The fund has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Lannett Company Inc. (LCI)

The company develops, markets, and distributes generic versions of branded pharmaceutical products in the U.S. The shares are great value plays with a Zacks Value Score of ‘A.’ The stock hails from a sector which in the top 16%. The company saw 48.6% annual sales growth in its last financial year and has a P/S ratio of 2.92 times, which is quite compelling in the space.

Retail Wholesale

Market Vectors Retail ETF (RTH)

A rebound in the U.S. economy, improved consumer confidence and low energy prices should perk up the retail sector. The sector has the second-best sales projection of 5.5%. As a result, the Zacks Rank #1 RTH should be closely watched (read: 6 ETFs to Play in Q1).

Nautilus Inc. (NLS)

Nautilus along with its subsidiaries, designs, manufactures, sources, and markets cardiovascular, and strength and nutrition fitness equipment, as well as the related accessories. The underlying sector of the stock is in the top 9%. The stock has a momentum score of ‘A’. The company has seen annual sales growth of 25.43%, with a P/S of 1.78.


First Trust Utilities Alphadex Fund (FXU)

The Utilities sector is expected to post 4.1% revenue growth in Q4. Plus, the subdued U.S. Treasury yields in spite of the Fed liftoff and the latest surge in risk-off trade sentiments should support the sector. Investors thus can a take a look at the Zacks Rank #3 ETF FXU.

Calpine Corp (CPN)

Calpine Corporation is a wholesale power generation company of North America. Its revenues grew 27.4% in the last fiscal year and the stock currently has a P/S of 0.68 times.

Consumer Discretionary

PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ)
The Consumer discretionary sector is projected to register 1.8% revenue growth in Q4. With the job market strengthening, consumers are likely to splurge on leisure and entertainment activities and products. Plus, According to Equity Clock, seasonal strength for this sector stretches from October 17 to April 12. PEJ has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 5 ETFs to Profit from the Oil Collapse).

Francesca's Holdings Corporation (FRAN)

Francesca's offers fashion apparel, accessories, and gifts targeted at women. Its revenues expanded 10.92% in the last fiscal year and it has a P/S ratio of 1.69 times. This is a high momentum stock with a score of ‘A’ though it provides moderate value also with a score of ‘C’.


Nasdaq Internet Portfolio (PNQI)

In the technology sector, Internet stocks and the related ETFs deserve special mention, with strength in the software/Internet spaces marred somewhat by weakness in the hardware and semi-conductor industries. Expected revenue growth for the tech space is 1.2%. PNQI has a Zacks ETF Rank #2 (Buy) (read: Internet ETFs to Buy After the Latest Sell-Off).

Upland Software Inc. (UPLD)

Upland Software offers cloud-based enterprise work management software. Its industry is in the top 25% space at the time of writing. Its previous yearly revenue growth was 56.76% and P/S ratio is 1.58 times. 


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