President Trump has been quite vocal since March on something or the other. He announced a pair of tariffs on steel and aluminum, initiated trade war with China, fired Secretary of State Rex Tillerson and targeted the e-commerce giant Amazon (AMZN - Free Report) over antitrust or competition laws as well as slapped the retailer with tax complaints saying it has not paid the post office properly for its delivery services (read: 6 Top ETF Stories of Q1).
Such a long chain of issues created chaos in Washington DC. To make things worse, the once-soaring tech space has come crashing down. The sector, which started off 2018 on a solid note helped by emerging technologies, started tumbling from March on a host of issues like Facebook’s data breaches, failure of NVIDIA’s self-driving car tests and short-selling pressure on Twitter on more regulations on the social media platform.
Buy the Dip?
Needless to say, investors are stricken with selloff fears. But JP Morgan Private Bank analyst noted that "There's noise in markets and noise creates opportunities." While political upheaval has clouded the market currently, the upcoming earnings season could emerge as a silver lining, per the analyst.
This is because earnings will finally pull the strings of the market movement over the long term. Also, recent selloffs made some sectors’ valuation cheaper and positioned these for further buying.
Against this backdrop, we highlight a few ETFs that have sound fundamentals for one reason or the other.
First Trust Materials AlphaDEX ETF FXZ
The basic materials sector is expected to post 42.1% earnings growth in Q1 on 21% revenue growth, as per the Earnings Trends issued on Mar 23, 2018. Notably, prices of several materials are on an uptrend lately. So, these companies will tend to benefit in the coming days. The fund has Zacks Rank #2 (Buy).
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
Consumer spending increased at the quickest clip in three years in the fourth quarter of 2017. This makes it important to look at this consumer-oriented fund. The consumer discretionary sector is expected to log 7.4% earnings growth in Q1 on a 6.6% expected uptick in revenues. The figures may not be the highest compared with other sectors, but decent numbers call for an investing in discretionary stocks.
PowerShares S&P SmallCap Industrials Portfolio (PSCI - Free Report)
The industrials sector is supposedly one of the key beneficiaries of the Trump administration thanks to his infrastructure plan that should create higher demand for a wide range of manufacturing products. Also, the tax reform could accelerate depreciation (as indicated by research firm Fundstrat), which in turn would boost capital spending and perk up activity in the sector. Fundstrat also pointed out late last year that regional producers’ manufacturing index readings hinted at higher capex intentions.
However, since import tariffs are now creating an upheaval, investors can pick Zacks Rank #1 (Strong Buy) fund PSCI which has a focus on small domestically focused industrial companies. The industrials sector is expected to witness about 24% earnings growth (read: Industrial ETFs at All-Time Highs: Any Value Left for 2018?).
ETFMG Prime Cyber Security ETF (HACK - Free Report)
Tech stocks were at the center of the storm that recently ravaged the market. But cyber security stocks stayed steady despite hailing from the space. The fear of cyberattacks rising rapidly due to data theft or data breaches. Be it the ransomware WannaCry or Petya, one cyber incident after another disrupted global stability in the last few months.
So, HACK could be a great buy-the-dip fund. In any case, the broader technology sector is likely to post nice earnings growth of 20.9% in Q1 on 11.4% higher revenues (read: What Investors Should Know About the Cybersecurity Industry (Revised)).
iShares US Oil & Gas Exploration & Production ETF (IEO - Free Report)
Energy sector earnings are expected to be up 60.8% in Q1 from the year-ago period after 157.2% year-over-year earnings growth in the preceding quarter. Oil prices have also stabilized lately. So, the space can be tapped with IEO (read: 6 Reasons to Buy These Energy ETFs and Stocks Now).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>