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ETFs in Focus Ahead of Big Tech Q4 Earnings

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We are in the peak earnings season and tech giants are in the spotlight this week, with some of five biggest giants reporting this week. Investors should note that technology has been the hardest hit sector since the start of 2022 thanks to rising yields.

This is because the tech sector relies on easy borrowing for superior growth and its value depends heavily on future earnings. A rise in long-term yields lowers the present value of companies’ future earnings, sparking fears of overvaluation. The five biggest technology stocks — Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , Meta Platforms , Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) — have gained an average of 0.8% over the past three months compared to a loss of 3.2% for the S&P 500 (read: 5 Cheap ETFs to Play Amid Tech Stocks' Worst Start Since 2016).



These five companies currently account for about 23% of the total market capitalization of the S&P 500 Index. Microsoft and Apple are scheduled to release their earnings on Jan 25 and Jan 27, respectively, while Alphabet and Meta Platforms will report on Feb 1 and Feb 2, respectively. Amazon is slated to report on Feb 3.

Microsoft

Microsoft has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 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.

The stock witnessed no earnings estimate revision for the to-be-reported quarter over the past 30 days. The Zacks Consensus Estimate indicates substantial earnings growth of 12.8% and revenue growth of 16.8% from the year-ago quarter. Microsoft’s earnings track is impressive, with the last four-quarter earnings surprise being 14.75%, on average. The stock belongs to a top-ranked Zacks industry (top 35%) and has lost about 4% over the past three months.

Alphabet

Alphabet has a Zacks Rank #3 and an Earnings ESP of +7.33%. It saw negative earnings estimate revision of 16 cents over the past seven days for the to-be-reported quarter. Analysts decreasing estimates right before earnings — with the most up-to-date information possible — is not a good indicator for the stock. The company’s earnings surprise track over the past four quarters is good with the beat being 41.53%, on average. Earnings and revenues are expected to grow 19.7% and 27.7%, respectively, from the year-ago quarter. Alphabet falls under a bottom-ranked Zacks industry (bottom 24%). The Internet behemoth has shed about 5% in the past three months.

Apple

Apple has a Zacks Rank #3 and an Earnings ESP of +2.89%. The stock saw no earnings estimate revision over the past 30 days for first-quarter fiscal 2022 and its earnings surprise history is strong. It delivered an earnings surprise of 22.29%, on average, over the past four quarters. Apple is expected to report substantial earnings growth of 12.5% from the year-ago quarter. Revenues are expected to increase 6% year over year. It belongs to a top-ranked Zacks industry (top 40%). The stock has gained 9.3% in the past three-month timeframe (read: Apple Hits $3T Market Cap for The First Time: ETFs to Buy).

Meta Platforms

Meta Platforms has a Zacks Rank #3 and an Earnings ESP of +2.52%. The social media giant saw no earnings estimate revision for the to-be-reported quarter over the past 30 days. The current Zacks Consensus Estimate for the yet-to-be reported quarter indicates substantial year-over-year earnings decline of 2.6%. Revenues are expected to increase 17.7%. Meta Platforms delivered an earnings surprise of 19.8%, on average, in the last four quarters. The stock belongs to a top-ranked Zacks industry (top 38%). Shares of FB have lost 8% in the past three months.

Amazon

Amazon has a Zacks Rank #4 and an Earnings ESP of +13.42%. The stock saw negative earnings estimate revision of a penny over the past 30 days for the fourth quarter. The Zacks Consensus Estimate represents substantial year-over-year earnings decline of 72.4% and revenue growth of 9.8%. Amazon’s earnings surprise history is impressive, with an average beat of 38.95% for the last four quarters. However, the stock falls under a bottom-ranked Zacks industry (bottom 22%). The online e-commerce behemoth has witnessed a share price decrease of 14% in the past three months.

ETFs to Tap

Given this, investors may want to play these stocks with the help of ETFs. Below we have highlighted six ETFs having the largest exposure to these tech giants.

MicroSectors FANG+ ETN (FNGS - Free Report) : This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the FAANG stocks and has a Zacks ETF Rank #3.

iShares Evolved U.S. Technology ETF (IETC - Free Report) : This fund employs data science techniques to identify companies with exposure to the technology sector. The five firms account for a combined 45.5% share in the basket (see: all the Technology ETFs here).

Vanguard Mega Cap Growth ETF (MGK - Free Report) : This ETF offers exposure to the largest growth stocks in the U.S. market and has a Zacks ETF Rank #2. The five firms account for a combined 41.2% share in the basket.

Blue Chip Growth ETF (TCHP - Free Report) : This fund focuses on companies with leading market positions, seasoned management and strong financial fundamentals. It accounts for a combined 45.8% in the five firms.

Invesco QQQ (QQQ - Free Report) : This ETF focuses on 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. This fund makes up for 36.9% share in the in-focus firms and has a Zacks ETF Rank #2 with a Medium risk outlook.

iShares Expanded Tech Sector ETF (IGM - Free Report) : This product offers broad exposure to the technology sector, and technology-related companies in the communication services and consumer discretionary sectors. It makes up for about 35.6% in the five big tech names and has a Zacks ETF Rank #1 with a Medium risk outlook.

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