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Spate of Upbeat Q3 Earnings Fueling Material ETFs

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Basic materials is one of the weakest sectors this reporting cycle. Earnings from about 79.5% of the sector’s total market capitalization reported so far are down 8.2% on 8.6% lower revenue growth. However, the beat ratio seems strong with 100% exceeding earnings estimates and 76.9% beating on revenues (read: October US Manufacturing About 2-Year Best: 4 Solid ETF Areas).  

Let’s dig into the earnings reports of some of the well-known players in the sector:

Earnings in Focus

U.S. chemical giant Dow Inc. (DOW - Free Report) reported earnings of 50 cents, easily surpassing the Zacks Consensus Estimate by 17 cents but declining from the year-ago earnings of 91 cents. Revenues dropped 10% year over year to $9.71 billion and edged past the estimated $9.25 billion. Meanwhile, DuPont de Nemours, Inc. (DD - Free Report) came up with earnings of 88 cents per share, trailing the Zacks Consensus Estimate of 11 cents. Revenues of $5.1 billion also topped the estimated $5 billion and fell 6% year over year.  

Linde plc (LIN - Free Report) topped earnings and revenues estimates. Earnings per share came in at $2.15, beating the consensus mark of $1.97 and year-ago earnings of $1.94. Revenues of $6.86 billion were ahead of the estimated figure of $6.76 billion but below the year-ago figure of $7 billion.  

PPG Industries (PPG - Free Report) also trumped estimates on earnings and revenues. Earnings per share of $1.93 came ahead of the Zacks Consensus Estimate by a penny, while revenues of $3.68 billion were slightly above the estimated $3.64 billion. On a year-over year basis, earnings were up 15.6%, while revenues dipped 3.7% (see: all the Materials ETFs here).

Ecolab (ECL - Free Report) topped on both fronts. Earnings per share came in above the Zacks Consensus Estimate by 6 cents and revenues edged past the estimate by $44 million. However, both earnings and revenues were down 24.3% and 6.4%, respectively, from the year-ago quarter.

The world's largest gold producer Newmont Corporation (NEM - Free Report) beat the earnings estimate but lagged on revenues. Earnings of 86 cents per share were ahead of the Zacks Consensus Estimate of 79 cents. Revenues increased 16.8% year over year to $3.1 million but fell shy of the estimated $3.27 billion.

ETFs in Focus

The string of upbeat results led to smooth trading in materials ETFs over the past month. Below we have highlighted those ETFs that have the top 10 holdings in these firms and gained nearly 5% each in a month. All these have a Zacks ETF Rank #2 (Buy), suggesting their outperformance in the coming weeks.

iShares U.S. Basic Materials ETF (IYM - Free Report)

This ETF tracks the Dow Jones U.S. Basic Materials Index and holds 35 stocks in its basket. It has AUM of $704.4 million and charges 43 bps in fees and expenses. Volume is good as it exchanges around 134,000 shares a day. The in-focus six firms collectively make up for 52.9% of the assets. The product is heavily skewed toward specialty chemical and industrial gases with around 30% of the portfolio each.

Materials Select Sector SPDR (XLB - Free Report)

The most-popular material ETF follows the Materials Select Sector Index. This fund manages about $4.4 billion in its asset base and trades in volumes as heavy as around 7.4 million. The ETF charges 13 bps in fees per year from investors. In total, the fund holds about 28 securities in its basket with in-focus six firms making up for 43.5% of assets. In terms of industrial exposure, chemicals dominates the portfolio with three-fourths share, while containers & packaging, and metals & mining round off the top three positions.

Vanguard Materials ETF (VAW - Free Report)

This fund has amassed about $2 billion in its asset base and offers exposure to 116 stocks by tracking the MSCI US Investable Market Materials 25/50 Index. The ETF has 0.10% in expense ratio, while volume is moderate at 99,000 shares. The in-focus firms make up for a combined 36.4% share in the basket. Specialty chemicals industrial gases take the largest share at 28.8 and 21%, respectively, while others offer a single-digit exposure each (read: Materials ETF Hits New 52-Week High).

Fidelity MSCI Materials Index ETF (FMAT - Free Report)

This fund provides exposure to 117 materials stocks with AUM of $207.2 million. This is done by tracking the MSCI USA IMI Materials Index. The in-focus firms account for a combined 34.8% share. Chemicals accounts for 63.7%, while container & packaging, and metals & mining round off the next two spots with a double-digit exposure each. The ETF has 0.08% in expense ratio while volume is lower at around 48,000 shares a day.

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