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Dow ETF in Focus Ahead of Q4 Earnings

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After logging in double digit gains in the fourth quarter, the Dow Jones continued its solid run to start the New Year buoyed by the widening reach of COVID-19 vaccines and hopes of more stimulus from a Democratic-led U.S. Congress.

The strength is likely to continue heading into the earnings season. For the fourth quarter, the S&P 500 earnings are expected to decline 10.4% despite 0.3% higher revenues. The earnings projection reflects an improvement from the 13.4% earnings decline expected at the end of the third quarter and follows the 7% earnings drop in Q3 (read: 4 Sector ETFs & Stocks to Bet on Q4 Earnings).

Given this upside in the earnings trend, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) , which tracks the Dow Jones Industrial Average Index, is in the spotlight.

DIA in Focus

This is one of the largest and the most-popular ETFs in the large-cap space with AUM of $24.8 billion and an average daily volume of 3.3 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 8% share. Information technology (21.1%), healthcare (17.7%), industrials (16.6%), financials (14.9%) and consumer discretionary (13.4%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk.   

Nearly two-tenth of the blue chip firms are expected to announce results this week and in the next. JPMorgan Chase (JPM - Free Report) is expected to release earnings on Jan 15 while International Business Machines (IBM - Free Report) and Goldman (GS - Free Report) are scheduled to report on Jan 19. UnitedHealth Group (UNH - Free Report) will report on Jan 20.

Let’s delve deeper into the fourth-quarter earnings picture that will likely aid the fund in the coming days.

Earnings Whispers

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

JPMorgan has a Zacks Rank #1 and Earnings ESP of +2.50%. The company saw positive earnings estimate revision of 34 cents over the past 30 days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. However, it delivered an average negative surprise of 4.02% in the last four quarters. The stock has an unimpressive VGM Score of F (read: Time to Bet on Bank ETFs Before Earnings Release?).

International Business Machines has a Zacks Rank #4 and an Earnings ESP of +3.39%. It saw negative earnings estimate revision of 42 cents in the past 30 days for the to-be-reported quarter and came up with a beat in each of the last four quarters, the average being 2.71%. IBM has a VGM Score of B.

UnitedHealth has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock witnessed positive earnings estimate revision of a penny over the past 30 days for the soon-to-be-reported quarter and delivered an earnings surprise of 15.22%, on average, over the last four quarters. It has a VGM Score of B (read: ETFs to Gain on UnitedHealth and Change Healthcare Deal).

Goldman has a Zacks Rank #1 and an Earnings ESP of +3.14%. The company witnessed positive earnings estimate revision of a penny over the past 30 days for the yet-to-be-reported quarter. Goldman’s earnings surprise track over the preceding four quarters has also been robust, the average beat being 15.22%. The stock has a VGM Score of B.

Bottom Line

With some blue-chip companies’ earnings scheduled for the coming days, investors should closely monitor the movement of the Dow ETF and grab an opportunity that arises from a surge in any of the 30 stocks.

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