Semiconductor ETFs Rallying Ahead Of Q4 Earnings

After witnessing their worst year since 2011 dragged down by U.S.-China trade war and waning demand for memory chips, semiconductor stocks have shown a solid rebound so far this year. As a result, iShares PHLX Semiconductor ETF (SOXX),VanEck Vectors Semiconductor ETF (SMH) and First Trust NASDAQ Semiconductor ETF (FTXL) havegained 6.3%, 6.4% and 7.2%, respectively, this year (read: Chip Stocks See Big Two-Day Rally After 2015: ETFs in Focus).

The strength is expected to continue this earnings season given reduced negative earnings estimate revision.

Some well-known players in the space like Texas Instruments (NASDAQ:TXN) , Qualcomm (NASDAQ:QCOM) , Intel (NASDAQ:INTC) , NVIDIA (NASDAQ:NVDA) and Applied Materials (NASDAQ:AMAT) are expected to report this week and in the coming weeks. Let’s delve into the earnings picture of the companies that have a higher allocation in the abovementioned ETFs and the power to move the funds up or down as Q4 earnings unfold. SOXX is largely concentrated on the five firms, with a combined share of 35.9%, followed by 34.4% for SMH and 23.9% for FTXL.

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Earnings Prediction

Texas Instruments is set to report on Jan 23, after market close. It has a Zacks Rank #4 and an Earnings ESP of 0.00%. The earnings estimate for the yet-to-be-reported quarter has been steady over the past 30 days. The earnings surprise track over the past four quarters is good, with an average beat of 3.07%. The stock has a VGM Score of C (see: all the Technology ETFs here).

Intel is slated to release earnings after market close on Jan 24. It has a Zacks Rank #2 and an Earnings ESP of -1.11%, indicating lower chances of beating estimates this quarter. The stock saw no earnings estimate revision by over the past 30 days for the to-be-reported quarter and delivered a positive earnings surprise of 18.73% on average over the last four quarters. It has a VGM Score of A.

Qualcomm has a Zacks Rank #3 and an Earnings ESP of +1.33%, indicating chances of beating estimates this quarter. The Zacks Consensus Estimate for fourth-quarter 2018 has been constant over the past month. The stock delivered a positive surprise of 18.47% in the last four quarters. It has a VGM Score of D. The company is expected to report results after the closing bell on Jan 30.

NVIDIA, expected to report on Feb 14, has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company delivered positive earnings surprises in the last four quarters, with an average beat of 18.57% and saw negative earnings estimate revision of a penny over the past month for the to-be-reported quarter. The stock has a VGM Score of D.

Applied Materials has a Zacks Rank #4 and an Earnings ESP of 0.00%. Its earnings surprise track over the past four quarters is good, with an average beat of 5.43%. The stock witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter. The company has a VGM Score of A and is slated to report on Feb 13.

Conclusion

As most of the companies in the space have seen no negative earnings estimate revisions, semiconductor ETFs are likely to see smooth trading in the weeks ahead. Further, all these ETFs have a Zacks ETF Rank #3, suggesting room for upside.

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