Materials ETFs Set to Gain As Q2 Earnings Unfold

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. However, the spike in the Delta variant of COVID-19 infections once again raised questions over the economic revival, leading to a decline in the stock market.

As such, the popular ETFs — Materials Select Sector SPDR XLB, Vanguard Materials ETF VAW, iShares U.S. Basic Materials ETF IYM and Fidelity MSCI Materials Index ETF FMAT — have declined more than 2% each over the past three months (read: Sector ETFs, Stocks to Bet on Q2 Solid Earnings Expectation).

Going into the Q2 earnings season, earning releases from the sector giants will determine the movement of these funds. Some well-known players in the space like Dow Inc. DOW, Linde (NYSE:LIN) plc LIN, Air Products & Chemicals APD, Newmont Corporation NEM, Ecolab Inc (NYSE:ECL). ECL, and DuPont de Nemours (NYSE:DD) Inc. DD will report earnings in the coming days. Let’s delve into the earnings picture of these companies as that would drive the performance of the funds dominated by them. These stocks collectively account for 50.3% share in IYM, 42.6% in XLB, 32.7% in FMAT and 32.6% in VAW.

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Dow is expected to release earnings on Jul 22 before the opening bell. It has a Zacks Rank #2 and an Earnings ESP of +5.57%. It has seen positive earnings estimate revision of 13 cents over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 26.47% in the last four quarters, on average. Analysts increasing estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The stock has a solid VGM Score of A.

Linde has a Zacks Rank #2 and an Earnings ESP of +1.59%. The company witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter. The stock’s earnings surprise track over the past four quarters is good with an average beat of 10.49%. The stock has a VGM Score of B. The company will report earnings on Jul 30 before market open (read: ETFs to Gain as US Industrial Output Increases in June).

Air Products & Chemicals has a Zacks Rank #2 and an Earnings ESP of -0.59%. It saw no earnings estimate revision over the past 30 days for the to-be-reported quarter and has delivered a negative earnings surprise of 2.32%, on average, for the last four quarters. The stock has a VGM Score of D. The company is scheduled to report on Aug 9 before market open.

Newmont, which is expected to release earnings on Jul 22, has a Zacks Rank #3 and an Earnings ESP of +6.63%. It has seen positive earnings estimate revision of a couple of cents over the last 30 days for the to-be-reported quarter and delivered an earnings surprise of 3.31%, on average, in the last four quarters. The stock has a VGM Score of A.

Ecolab is expected to release earnings on Jul 27 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -15.49%. The stock has seen negative earnings estimate revision of a couple of cents over the past month for the to-be-reported quarter and delivered a negative earnings surprise of 4.35%, on average, in the last four quarters. The stock has a solid Growth Score of B.

DuPont has a Zacks Rank #3 and an Earnings ESP of +3.81%. The company saw no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 13.59%, on average, over the last four quarters. Additionally, the stock has a solid VGM Score of B. The company is scheduled to report earnings on Aug 3 before the opening bell (see: all the Materials ETFs here).

Summing Up

With earnings surprises in the cards for many companies, materials ETFs might see smooth trading in the weeks ahead. Further, the above-mentioned ETFs have a Zacks ETF Rank #1 or #2 (Buy), suggesting their outperformance.

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