Stock markets have been in good shape in recent months despite the rise in COVID-19 cases and a lackluster economic scenario. The Nasdaq especially is hovering around an all-time high. The S&P 500 Index is also slightly short of its 52-week high.
The unprecedented Fed and government stimulus, and vaccine hopes have made this possible. Several economic datapoints came in upbeat in recent months, pointing at pent-up consumer demand. While the market rally in this trying time is encouraging, some analysts believe that the rally does not have legs.
Presidential election uncertainty, a second wave of virus contagion, sustainability of the stimulus and again embittering U.S.-China relations may worsen the market momentum. The winning index of the pandemic — the Nasdaq and the winning sector technology — may see overvaluation concerns.
Michael Wilson, chief U.S. equity strategist at Morgan Stanley, and his colleagues believe that “the most likely outcome remains
a 10% correction in the broader index led by the beneficiaries before the recovery and bull market continues.”
Against this backdrop, it would be intriguing to pick ETFs that have strong fundamentals and a Zacks Rank #1 (Strong Buy) or 2 (Buy), and have been trading at a bargain price. Here are the options that have a three-year P/E ratio less than that of the
SPDR S&P 500 ETF ( SPY Quick Quote SPY - Free Report) (24.04X). Invesco Dynamic Semiconductors ETF ( PSI Quick Quote PSI - Free Report) – 23.94X
The underlying Dynamic Semiconductor Intellidex Index comprises stocks of semiconductor companies. The index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.
Solid earnings, a jump in the bitcoin market, a roaring video gaming industry and the rollout of 5G should propel the semiconductor space higher. The fund has advanced 6.5% past month (read:
Semiconductor ETFs in Focus as AMD Soars). SPDR S&P Retail ( XRT Quick Quote XRT - Free Report) ) – 19.19X
The retail fund is heavy on Internet & Direct Marketing Retail (which is roaring space right now) with about 26% exposure. The earnings picture has also been moderate for the retail sector with an 18.6% decline in Q2. The sector is likely to log a 12% fall in earnings in Q3, which is decent given the lackluster conditions of many other sectors.
Consumer spending is very important for U.S. economic wellbeing as it contributes 70% of U.S. GDP. The Present Situation Index of the consumer confidence rose to 94.2 in July from 86.7 in the previous month. The fund has added about 17.2% past month.
Vanguard Extended Market ETF ( VXF Quick Quote VXF - Free Report) ) – 17.70X
The underlying S&P Completion Index contains all the U.S. common stocks. So, if there is a U.S. market rally, the fund should propel higher, given its sub-par valuation. The fund has gained 8.6% past month.
Vanguard High Dividend Yield ETF ( VYM Quick Quote VYM - Free Report) – 16.70X
The underlying FTSE High Dividend Yield Index consists of common stocks of companies which pay dividends that generally are higher than average. The fund yields 3.56% annually and thus emerges as a lucrative bet amid record-low yield environment. The fund has added 8% past month.
Invesco KBW High Dividend Yield Financial ETF ( KBWD Quick Quote KBWD - Free Report) – 11.19X
The underlying KBW Nasdaq Financial Sector Dividend Yield Index is a dividend-yield weighted index seeking to reflect the performance of approximately 24 to 40 publicly listed financial companies in the United States. The fund has added 13.5% past month and yields 12.99% annually.
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