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FAAMG ETFs to Watch as Q4 Earnings Unfold

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FAAMG — Facebook , Apple (AAPL - Free Report) , Amazon.com (AMZN - Free Report) , Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) — has become the hottest cluster this week, with earnings releases coming up in a day or two.

The emergence of cutting-edge technology is acting as key catalysts. Additionally, a combination of factors like improving global fundamentals, strong corporate earnings, a rising interest rate scenario, and Trump’s biggest tax overhaul in decades have added to the strength (read: Trump's First Year in Office: 5 Must-See ETF Charts).

As a result, FAAMG-based ETFs, namelyPowerShares QQQ (QQQ - Free Report) , iShares North American Tech ETF (IGM - Free Report) and New Tech and Media ETF have given remarkable performances this year. These ETFs are up 9.7%, 10.3% and 8.7%, respectively. The ultra-popular tech ETFs like Select Sector SPDR Technology ETF (XLK - Free Report) , Vanguard Information Technology ETF (VGT - Free Report) , iShares Dow Jones US Technology ETF (IYW - Free Report) , and MSCI Information Technology Index ETF (FTEC - Free Report) having four players from the FAAMG group under their hood, are also up more than 8%.

The bullish trend is likely to continue heading into the Q4 earnings season given that FAAMG is once again likely to dominate the rally. QQQ has the largest 38% share in this group, followed by 34.8% in IGM and 33% in FNG. On the other hand, IYW has the largest concentration in Facebook, Apple, Microsoft, and Alphabet with a combined share of 43.5%, followed by 40.6% for VGT, 37.6% for XLK and 34.6% for FTEC (read: Inside the Leveraged & Inverse FAANG ETNs Launch).

Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

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 Surprise Prediction

Facebook has a Zacks Rank #2 and an Earnings ESP of +0.68%, indicating higher chances of beating estimates this quarter. Facebook delivered positive surprises in the last four quarters, with an average beat of 14.02% but witnessed negative earnings estimate revision of 24 cents over the past three months for the to-be-reported quarter. The stock has a VGM Style Score of D. Facebook is expected to release its earnings report on Jan 31, after market close.

Apple is slated to release earnings after market close on Feb 1. The stock has a Zacks Rank #3 and an Earnings ESP of +1.56%, indicating reasonable chances of beating estimates this quarter. The iPhone maker delivered a positive surprise of 6.35% in the last four quarters and saw positive earnings estimate revision of four cents over the past 90 days for the to-be-reported quarter. However, the stock has a VGM Style Score of C (read: Profit From Apple's Big Plans With These ETFs).

Amazon, also expected to report on Feb 1 after market close, has a Zacks Rank #3 and an Earnings ESP of -6.40%, indicating lower chances of beating estimates this quarter. The company delivered a positive surprise of 1,270.57% in the last four quarters but saw negative earnings estimate revision of five cents over the past three months for the to-be-reported quarter. The stock has a VGM Style Score of B.

Microsoft has a Zacks Rank #3 and an Earnings ESP of +0.21%, indicating reasonable chance of beating estimates this quarter. The Zacks Consensus Estimate for fourth-quarter 2017 remained constant at 86 cents over the past three months. Additionally, the stock delivered a positive surprise of 16.39% in the last four quarters. However, it has a VGM Style Score of D. The company is expected to report results after the closing bell on Jan 31.

Alphabet has a Zacks Rank #3 and an Earnings ESP of -0.65%, indicating lesser chances of beating estimates this quarter. The earnings surprise track over the past four quarters is good with an average beat of 7.05% and there is no earnings estimate revision activity over the past 90 days for the to-be-reported quarter. It has a VGM Style Score of C. The company will report after the closing bell on Feb 1 (see: all the Technology ETFs here).

Summing Up

Given the favorable Zacks Rank and positive earnings outlook, surprises may well be in the cards. This could give further boost to the FAAMG ETFs. These ETFs mentioned above have a Zacks ETF Rank of 1 or 2.

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