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Q2 Earnings to Gather Steam: 4 Sector ETFs & Stocks to Play

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The second-quarter earnings season has started hogging attention, sending Brexit to the backseat.  This is especially true as U.S. corporate earnings have been in the grip of recession over the last few quarters. With Q2 appearing to be no different, investors will be busy analyzing the future trend and looking for hidden gems in the broad-based earnings gloom (read: Earnings Recession Put These ETFs in Focus).

As per the Zacks Earnings Trends issued on July 7, 2016, the earnings of the S&P 500 index are likely to decline 6.2% in the second quarter of 2016 while revenues are expected to fall 0.7%. With nine of the 16 Zacks sectors likely to post an earnings decline, the picture looks worrying.

Energy is the biggest culprit in the growth picture as ex-oil, S&P 500 earnings are expected to log a 2.9% decline on 2.2% higher revenues. This means that there definitely are areas which hold steady and offer investors scope to cash in on.

Also, the earnings expectation of the S&P 500 index for Q3 is a decline of 0.4% while revenues are expected to enter the growth territory with a 1.3% expansion rate. Definitely, it gives cues of recovery next quarter onward.

Given this, investors may try to position themselves ahead of time and look to tap sector ETFs and stocks that could emerge big winners following Q2 earnings. Below, we highlight four sectors which are better positioned in terms earnings and revenue growth.

Construction

This sector is expected to post 8.9% earnings growth in Q2 on 5.2% revenue growth. With historically low interest rates, this sector will likely see smooth sailing ahead (read: Forget Brexit; Buy These Stocks and ETFs).

PowerShares Dynamic Building & Construction Portfolio (PKB - Free Report)

This fund tracks the Dynamic Building & Construction Intellidex Index, holding 30 stocks in its basket. It has tilt toward mid and small-cap stocks.

NCI Building Systems Inc.

NCI Building Systems designs, manufactures, and markets metal products for the nonresidential construction industry in North America. The company has a Zacks Rank #2 (Buy) and a VGM score of ‘B’ at the time of writing.  This year’s estimated earnings growth rate is 61.9%.

Auto

The automotive sector is expected to register 8.5% earnings growth on 1.9% revenue growth. Cheaper fuel price is presently a tailwind for the space, although forward earnings and revenue growth projections have turned negative for the sector. Still, investors having a strong stomach for risks can play the sector with a short-term notion.

First Trust NASDAQ Global Auto Index Fund (CARZ - Free Report)

This fund offers a pure play global exposure to about 33 auto stocks. Japan (35%), U.S. (24.2%) and Germany (17.9%) get top exposure in the fund (read: Acquisition Talks Boost SolarCity;Hit Tesla: ETFs in Focus).

Unique Fabricating Inc. (UFAB - Free Report)

The U.S.-based companysells its products to original equipment manufacturers and suppliers in the automotive, appliance, water heater and heating, ventilation, and air conditioning industries in North America.  This Zacks Rank #1 (Strong Buy) stock has a VGM score of ‘B’ and forward earnings growth projection of 18.92%.

Medical

Though the sector has been out of favor so far this year on the biotech meltdown and controversies over high drug pricing, its fundamentals are pretty strong with 7.7% revenue growth and 0.2% earnings growth for Q2. Not only this, growth projections for both lines are quite solid for the coming four quarters, as per Zacks Earnings Trends.

Vanguard Health Care ETF (VHT - Free Report)

The fund offers broad-based exposure to the health care sector with pharmaceuticals getting 34% weight and biotechnology accounting for 24.1% of the basket. Healthcare equipment makes up 15.7% of the fund (read: Healthcare Q1 Earnings Look Solid: ETFs to Benefit).

PharMerica Corporation

This U.S.-based institutional pharmacy services company’s estimated earnings growth rate for this year is 31.90%. It has a Zacks Rank #1 and a VGM score of ‘A’.

Retail

Though this cyclical sector is expected to post 0.6% decline in earnings, its revenue growth projection is 4.7%. Plus, from Q3, the sector is expected to exhibit a positive growth rate for both lines. This makes it necessary to look at this sector. With still-cheaper fuel, a decent job market and low levels of interest rates, retail should have a decent run ahead.

iShares Edge MSCI Multi-Factor Consumer Discretionary ETF

The fund focuses on inexpensive stocks, financially sound companies and relatively smaller companies.Pure retailing has about 45% exposure while the other corners oftheconsumer discretionarysector take the rest of the weight.

Carrols Restaurant Group Inc. (TAST - Free Report)

This restaurant company’s expected earnings growth rate for this year is 55.26%. It has a Zacks ETF Rank #1 and a VGM score of ‘A’.

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