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5 Sector ETFs to Tap for Revenue Growth Potential

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The second-quarter (Q2) earnings reporting cycle is in full swing. Investors have already shifted their focus from Fed and Russia and put emphasis on earnings releases.

Bottom line may be investors’ top focus going into an earnings season, but top line probably tells you more about the inherent strength of a company.

Why to Follow Revenue Growth This Reporting Cycle?

For Q2, total earnings are expected to grow 4.2% from the same period last year on 10.4% higher revenues as per the Earnings Trends issued on Jul 27, 2022. Earnings growth will likely trail revenue growth in the coming quarters. For Q3 and Q4, earnings growths are likely to be 6.5% and 6.2% over 9.2% and 7.0%, respectively.

For Q2, eight out of the Zacks classified 16 sectors of the S&P 500 will likely witness a double-digit growth in revenues. Further, investors should note that sales are harder to be influenced in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak for its core strength. But it is harder for a company to mold its revenue figure.

Below, we highlight five sectors and their related ETFs that could be used to book some profits on revenue growth potential.

Consumer Discretionary – Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)

The sector is expected to expand 21.2% in Q2 followed by 16.3% expansion in Q1. The consumer sentiment too improved lately. The University of Michigan consumer sentiment rose to 51.5 in July of 2022 from a record low of 50 in June, in line with preliminary estimates. The current economic conditions subindex was revised higher to 58.1 from a preliminary of 57.1, per tradingeconomics.

Construction – Global X U.S. Infrastructure Development ETF (PAVE - Free Report)

The sector is expected to record 15% revenue growth in Q2, following 17.9% expansion in the previous quarter. Biden’s infrastructure plan makes PAVE an intriguing pick.

Basic Materials – Materials Select Sector SPDR ETF (XLB - Free Report)

As manufacturing activities are in decent shape (if not great), demand for materials is likely to pick up. In any case, metal prices are high lately thanks to a moderation in the greenback rally and higher demand as well as supply chain issues. All these should bode well for material ETFs.

Industrials – Industrial Select Sector SPDR ETF (XLI - Free Report)

Industrial activities have been in decent shape. Growing employment in manufacturing sector calls for that strength. The sector is expected to witness revenue growth of 10.8% in Q2 revenues, after 10.6% growth in Q1.

Autos – First Trust S-Network Future Vehicles & Technology ETF (CARZ - Free Report)

The sector is expected to witness revenue growth of 18.8% in the ongoing reporting cycle, after 12.3% growth in Q1. Decent sales of Motor Vehicle & Parts and the price inflation of new cars have been palpable. Both factors indicate that the business conditions remained favorable for the auto industry.