While the Q3 earnings season has kicked off with disappointing results from aluminum giant Alcoa (AA Quick QuoteAA - Free Report) , the overall earnings picture is likely to be modestly better than the prior quarters.

This is especially true as Q3 earnings estimates have declined to 2.9% from a flat reading at the beginning of July, as per the Zacks Earnings Trend, reflecting the lowest negative revisions in recent quarters. This is almost similar to the prior quarter earnings deceleration. Revenues are expected to grow 1.2%, better than 0.2% growth in Q2.

Earnings could be flat or even record slight growth at the finish if we go by the recent trend. Looking back at the Q2 earnings season, earnings for the S&P 500 index were expected to decline 6.2%, but eventually recorded a decline of 2.8%. A similar trend was witnessed in the Q1 earnings season and the prior quarters as well with actual earnings growth rates coming in better than the pre-season expectations by about 2% to 3%.

Investors should note that energy remains a drag on Q3 earnings growth with the sector expected to decline 68.3%. Total earnings for the S&P 500, save the energy sector, are expected to grow a modest 0.3% on 2.8% revenue growth. The business service sector will likely lead the way higher with 7.1% earnings growth, followed by 6.3% growth in construction. Utilities, retail and finance are expected to post strong earnings growth of 4.8%, 4.4% and 4.0%, respectively (read: Top-Ranked Sector ETFs & Stocks for Q4).

Given this, we have highlighted one ETF and one stock from each of these sectors that could make great plays. Each of these ETFs and stocks have a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold). For the stocks, we have added the extra flavor of a positive Earnings ESP, as stocks with this combination have a 70% chance of beating estimates when their earnings are released in the coming weeks.

Construction

iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 44 stocks with double-digit allocation going to D.R. Horton (DHI Quick QuoteDHI - Free Report) and Lennar (LEN Quick QuoteLEN - Free Report) . Other firms hold no more than 8.07% of the assets. Homebuilding takes the top spot at 64.7%, followed by 14.8% in building products and 9.2% in home improvement retail. The product has amassed $1.2 billion in its asset base and trades in heavy volume of more than 2.8 million shares a day on average. The ETF charges 44 bps in annual fees and has a Zacks ETF Rank of 1 with a High risk outlook (read: 5 ETFs to Cash in on Home-Buying Spree).

Lennox International, Inc. (LII Quick QuoteLII - Free Report) : This Zacks Rank #2 company with a VGM Style Score of B is a leading global provider of climate control solutions. It designs, manufactures, and markets a range of products for the heating, ventilation, air conditioning, and refrigeration markets. It has an Earnings ESP of +4.02% and has delivered positive earnings surprises in three of the last four quarters, with an average beat of 2.53%. The Zacks Consensus Estimate for third quarter 2016 is $2.24, up three cents over the past three months and representing year-over-year earnings growth of 23.32%. The company is slated to release its earnings results before the opening bell on October 17.

Utilities

First Trust Utilities AlphaDEX Fund (FXU Quick QuoteFXU - Free Report) : This product follows the StrataQuant Utilities Index, holding 38 securities in its basket. It is pretty spread out across components as each security holds less than 5% of the total assets. Electric utilities takes the largest share at 41.5%, followed by diversified telecommunication services (21.5%) and multi utilities (20.2%). The fund has accumulated $1.6 billion in its asset base and trades in a good volume of about 579,000 shares a day. It charges 66 bps in annual fees and has a Zacks ETF Rank of 3 with a Medium risk outlook (read: 3 Utility ETFs Gaining on Abating Rate Hike Prospects).

DTE Energy Company (DTE Quick QuoteDTE - Free Report) : This Zacks Rank #2 company with a VGM Style Score of B is a diversified energy company involved in the development and management of energy-related businesses and services nationwide. It saw positive earnings estimate revisions of 10 cents for the third quarter over the past 60 days, with an expected growth rate of 6.67%. It has an Earnings ESP of +3.36% and delivered positive earnings surprises in the last four quarters, with an average beat of 6.94%. DTE Energy is scheduled to report its results on October 28 before the market opens.

Retail

VanEck Vectors Retail ETF (RTH Quick QuoteRTH - Free Report) : This fund tracks the MVIS US Listed Retail 25 Index and holds about 26 stocks in its basket. It is heavily concentrated on the top firm – Amazon – at 17.7%, followed by Home Depot and Wal-Mart with a combined share of 13.7%. Sector wise, specialty retail occupies the top position with 28% share, followed by double-digit allocations each to Internet and catalogue retail, hypermarkets, departmental stores, drug stores, and health care services. The fund has amassed $117.3 million in its asset base while average daily volume is light at about 24,000 shares. Expense ratio came in at 0.35%. The product has a Zacks ETF Rank of 3 with a Medium risk outlook (read: Should You Buy Retail ETFs for Q4?).

Best Buy Co. Inc. (BBY Quick QuoteBBY - Free Report) : This Zacks Rank #2 company with a VGM Style Score of A operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. It has an Earnings ESP of +8.51% and delivered positive earnings surprises in the last four quarters, with an average beat of 21.96%. Best Buy saw positive earnings estimate revisions of a penny over the past three months for the third quarter, representing earnings growth of 14.19%. The company is slated to release earnings results on November 17.

Finance

Financial Select Sector SPDR Fund (XLF Quick QuoteXLF - Free Report) : This is the most popular financial ETF in the space with an AUM of $12.4 billion and an average daily volume of about 43.3 million shares. It tracks the Financial Select Sector Index, holding 66 stocks in its basket. The top three firms – Berkshire Hathaway (BRK.B), JPMorgan Chase (JPM) and Wells Fargo (WFC) – collectively account for 30% share while the other firms hold less than 6.8% of the assets. In terms of industrial exposure, banks take the top spot at 42.7% while insurance, capital markets and diversified financial services make up for double-digit exposure each. The fund charges 14 bps in annual fees and has a Zacks ETF Rank of 3 with a Medium risk outlook (read: What's in Store for Banking ETFs in Q3 Earnings Season?).

Oaktree Capital Group : This Zacks Rank #2 company with a VGM Style Score of A is an investment management firm focused on alternative markets. It manages investments in a number of strategies within six asset classes, including distressed debt; corporate debt, including high yield debt and senior loans; control investing; convertible securities; real estate; and listed equities. It saw solid earnings estimate revisions of 14 cents for the third quarter over the past three months, and has a whopping expected growth rate of 478.8%. It has an Earnings ESP of +4.69% and delivered positive earnings surprises in three of the last four quarters, with an average beat of 21.66%. Oaktree Capital is scheduled to report its earnings results before the opening bell on October 28.

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