The third-quarter (Q3) earnings reporting cycle has kicked off and will be in full swing over the next few weeks. It is now just a matter of time for investors to shift their focus from Trump, Fed and North Korea 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 Q3, total earnings are expected to grow 3.1% from the same period last year on 5.1% higher revenues as per the Earnings Trends issued on Sep 20, 2017. Earnings growth will likely slacken from Q2's 11.1% rate while revenue growth will remain almost steady at 5.1% (last quarter’s was 5.5%).
For Q3, seven out of the Zacks classified 16 sectors of the S&P 500 will likely witness a decline in earnings while just one sector is expected to see revenue decline.
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.
Retail – SPDR S&P Retail ETF (XRT - Free Report)
The sector is expected to expand 5.5% in Q3 followed by 4.9% expansion in Q2. Plus, the retail sector remains in the sweet spot entering into the fourth quarter as the holiday season unfolds and consumers’ shopping spree begins (read: 4 ETFs & Stocks to Dodge Harvey's Ire and Retail Sales Slump).
Construction – Global X U.S. Infrastructure Development ETF (PAVE - Free Report)
The sector is expected to record 11.3% revenue growth in Q3, following 8.8% expansion in the previous quarter. After all, Trump’s pro-industrial agenda and post-hurricane rebuilding should favor this segment. This makes PAVE an intriguing pick (read: Housing Stands Tall in 2017: ETFs in Focus).
Basic Materials – Materials Select Sector SPDR ETF (XLB - Free Report)
As manufacturing activities gain momentum, demand for materials is likely to pick up. Plus, the economy needs to stabilize itself from Harvey and Irma’s ire, which demands stepped-up construction. In any case, metal prices are on a tear lately thanks to a subdued greenback and better demand-supply dynamics. All these bode well for material ETFs.
Technology – SPDR Technology Select Sector SPDR Fund (XLK - Free Report)
The technology sector has been positioned strongly thanks to improving economic and industry fundamentals and Trump’s proposed corporate tax reform. The sector is expected to witness revenue growth of 6.7% in Q3 earnings, after 7.6% growth in Q2.
Transportation – SPDR S&P Transportation ETF (XTN - Free Report)
The sector is expected to witness revenue growth of 5% in the ongoing reporting cycle, after 10.1% growth in Q2. The transportation sector is best positioned to take advantage of falling crude. This is especially true as energy costs form a major portion of the overall costs of this sector and falling oil prices are likely to boost earnings of airlines and shipping companies (read: 5 ETFs to Buy as Crude Crashes on Inventory Built).
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