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Should You Buy Beaten Down FANG ETFs Ahead of Q1 Earnings?

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The so-called FANG stocks, which have powered the U.S. stock market rally in the ongoing Trump era, lost their sheen last month amid the worst tech rout. Notably, the NYSE FANG index, which tracks the 10 biggest and most-active tech stocks in the world, slipped into deep correction territory (down more than 10% from its latest peak) at the end of last month (read: 5 Reason Why FANG ETFs Lost Their Charm in March).

The steep sell-off was driven by a spate of negative news from these key companies from the Facebook (FB - Free Report) data scandal to Trump’s series of allegations on Amazon (AMZN - Free Report) . However, the FANG stocks sprung back to life in the latest week on optimism of strong earnings. Per the Earnings Trends report, the technology sector is expected to see earnings growth of 20.8% and revenue growth of 11.4% for the first quarter.

As a result, FANG-based ETFs, namely PowerShares NASDAQ Internet Portfolio (PNQI - Free Report) , First Trust Dow Jones Internet Index Fund (FDN - Free Report) and New Tech and Media ETF (FNG - Free Report) rose at least 1% over the past week. The smooth trading is likely to continue heading into the Q1 earnings season. PNQI has the largest 31.6% share in this group, followed by 28.2% in FDN and 24% in FNG (read: Top Performing Tech ETFs of 2018).

Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction

Facebook has a Zacks Rank #4 and an Earnings ESP of +1.20%. Facebook witnessed negative earnings estimate revision of a penny over the past month for the to-be-reported quarter but delivered positive surprises in the last four quarters, with an average beat of 15.78%. The stock has a VGM Style Score of C. Facebook is expected to release its earnings report on Apr 25, after market close.

Facebook, Inc. Price, Consensus and EPS Surprise

Facebook, Inc. Price, Consensus and EPS Surprise | Facebook, Inc. Quote

Amazon, expected to report on Apr 26 after market close, has a Zacks Rank #1 and an Earnings ESP of +7.69%, indicating higher chances of beating estimates this quarter. The company delivered a positive surprise of 1,272.26% in the last four quarters and saw no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a VGM Style Score of D (read: ETFs to Turn Amazon's Pain Into Your Gain).

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise | Amazon.com, Inc. Quote

Netflix (NFLX - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.30%, indicating a higher chance of beating estimates this quarter. The Zacks Consensus Estimate for first-quarter 2018 remained constant at 63 cents over the past month. However, the stock delivered a negative earnings surprise of 2.59% in the last four quarters and has a VGM Style Score of F. The company is expected to report results after the closing bell on Apr 16.

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. Price, Consensus and EPS Surprise | Netflix, Inc. Quote

Alphabet (GOOGL - Free Report) has a Zacks Rank #4 and an Earnings ESP of -2.83%. The stock saw negative earnings estimate revision of six cents over the past month for the to-be-reported quarter but the earnings surprise track over the past four quarters is good with an average beat of 6.71%. It has a VGM Style Score of B. The company will report after the closing bell on Apr 26 (see: all the Technology ETFs here).

Alphabet Inc. Price, Consensus and EPS Surprise

Alphabet Inc. Price, Consensus and EPS Surprise | Alphabet Inc. Quote

Bottom Line

Given a few earnings surprises in cards and a beaten down prices, it would not be a bad deal to buy the FANG ETFs for this earnings season. In particular, FDN seems screaming buy out of the three funds given its Zacks ETF Rank #2. Meanwhile, PNQI has a Zacks ETF Rank #3.

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