As a reporting cycle unfolds, investors’ attention turns toward the bottom line. But we would like to emphasize that sales deserve equal attention.
For Q4, two of the Zacks classified 16 sectors of the S&P 500 will likely witness a decline in earnings while just one is expected to witness revenue decline.
Total earnings are expected to grow 9.9% from the same period last year on 7.0% higher revenues as per the Earnings Trends issued on Jan 17, 2018.
Further, 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 for its core strength. But it is harder for a company to mold its revenue figure.
Below, we highlight four sectors and their related ETFs that could be used to book some profits on double-digit revenue growth potential (read: 3 Sector ETFs for 2018).
Energy –VanEck Vectors Oil Services ETF OIH
Prolonged oil woes are known to all. But probably thanks to easy comparison and the recent recovery in the oil patch, the sector is expected to log 24.2% expansion in Q4 of 2017, the highest among the Zacks classified 16 sectors under the S&P 500 index (read: Energy ETFs & Stocks Soaring to Start 2018).
Though playing this sensitive area is a little bit tricky, investors should note that oil prices are recovering lately. The ongoing OPEC output cut deal is actually pushing up prices. Plus, a subdued U.S. dollar is also favoring commodity prices including oil.
Materials –First Trust Materials AlphaDEX Fund FXZ
The sector is expected to witness the second-highest revenue growth of 17.7% in the ongoing earnings season. The materials sector is best positioned to take advantage of Trump trade. This is especially true as Trump has promised massive infrastructure spending. Moreover, the President believes in the “America First” principle, which means more manufacturing in the U.S. territory. All these should create the need for more materials.
Industrial Products —PowerShares DWA Industrials Momentum Portfolio (V:PRN)
Though the Trump rally seems to have left its best period behind as much of the optimism is reflected at the current level, industrial stocks (one of best Trump beneficiaries) can see a few more days of the bull run. The U.S. manufacturing sector is in decent shape right now.
The IHS Markit US Manufacturing PMI rose to 55.1 in December of 2017 from 53.9 in November and above a preliminary reading of 55. The reading marked the fastest rate of growth in factory activity since March of 2015 thanks to strong client demand. Also, new orders and job creation was the strongest since September 2014.
Global economic improvement also points to an expected uptick in demand. All these may be beneficial to industrial ETFs. The sector is expected to log the third-best revenue growth of 11.9%.
Construction – PowerShares Dynamic Building & Construction ETF PKB
The sector is expected to record 10.5% revenue growth in Q4. This sector created 30,000 jobs in December with most of the increase (24,000) seen among specialty trade contractors. In the whole of last year, construction employment grew 210,000 compared with a gain of 155,000 in 2016. This makes PKB an intriguing pick (read: 3 Sector ETFs & Stocks to Sizzle Despite Downbeat Job Data).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
PWRSH-DW IND MO (PRN): ETF Research Reports
PWRSH-DYN BLDG (PKB): ETF Research Reports
VANECK-OIL SVC (OIH): ETF Research Reports
FT-MATERLS ALP (FXZ): ETF Research Reports
Original post
Zacks Investment Research