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Despite the fact that semiconductor stocks are most vulnerable to trade tensions between the United States and China, this corner of the broad technology market is in focus currently (read: Chip ETFs Tumble as Trade Fears Intensify: Time to Buy?).
Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies are acting as major catalysts.
As a result, iShares PHLX Semiconductor ETF (SOXX - Free Report) , VanEck Vectors Semiconductor ETF (SMH - Free Report) and PowerShares Dynamic Semiconductors Fund (PSI - Free Report) have gained more than 7% in the past three months. The strength might continue this earnings season, given the series of positive earnings surprises and positive estimate revisions.
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.
Most of the chipmakers like Texas Instruments (TXN - Free Report) , Qualcomm (QCOM - Free Report) , Intel (INTC - Free Report) , NVIDIA (NVDA - Free Report) and Applied Materials (AMAT - Free Report) are poised to come up with an earnings surprise this quarter. Let’s delve into the earnings picture of these companies that have a higher allocation in the abovementioned ETFs and the power to move the funds up or down as Q2 earnings unfold. SOXX is largely concentrated on the five firms, with a combined share of 35.9%, followed by 30.3% for SMH and 24.3% for PSI.
Inside Our Earnings Prediction
Texas Instruments is set to report on Jul 24, after market close. It has a Zacks Rank #2 and an Earnings ESP of +0.96%, indicating higher chances of beating estimates this quarter. The earnings estimate for the yet-to-be-reported quarter has gone up by a penny in the past 30 days. The earnings surprise track over the past four quarters is also good, with an average beat of 7.48%. The stock has a VGM Score of B (see: all the Technology ETFs here).
Qualcomm has a Zacks Rank #3 and an Earnings ESP of -1.24%, indicating a lower chance of beating estimates this quarter. The Zacks Consensus Estimate for second-quarter 2018 has been revised downward by a couple of cents over the past month. However, the stock delivered a positive surprise of 9.19% in the last four quarters. It has a VGM Score of C. The company is expected to report results after the closing bell on Jul 25.
Intel is slated to release earnings after market close on Jul 26. It has a Zacks Rank #1 and an Earnings ESP of 0.00%, making surprise prediction difficult. The stock has seen a positive earnings estimate revision by a penny over the past 30 days for the to-be-reported quarter and delivered a positive earnings surprise of 20.06% on average over the last four quarters. It has a VGM Score of A.
NVIDIA, expected to report on Aug 16, has a Zacks Rank #3 and an Earnings ESP of +0.48%, indicating reasonable chances of beating estimates this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 40.10% and saw no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a VGM Score of C.
Applied Materials has a Zacks Rank #3 and an Earnings ESP of +0.95%, indicating a reasonable chance of beating estimates this quarter. Its earnings surprise track over the past four quarters is good, with an average beat of 5.76%. The stock witnessed no earnings estimate revisions over the past 30 days for the to-be-reported quarter. The company has a VGM Score of A and is slated to report on Aug 16 (read: Why This Semiconductor ETF Lost Almost Half of its Assets).
Conclusion
With most of the companies in the space likely to beat on earnings and witnessing positive estimate revisions, semiconductor ETFs are poised to surge higher in the weeks ahead. Further, SOXX and PSI have a Zacks ETF Rank #1 while SMH has a Zacks ETF Rank #2, suggesting that investors could stuff these funds in the earnings season for outperformance.
Image: Bigstock
What's in Store for Chip ETFs in Q2 Earnings?
Despite the fact that semiconductor stocks are most vulnerable to trade tensions between the United States and China, this corner of the broad technology market is in focus currently (read: Chip ETFs Tumble as Trade Fears Intensify: Time to Buy?).
Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies are acting as major catalysts.
As a result, iShares PHLX Semiconductor ETF (SOXX - Free Report) , VanEck Vectors Semiconductor ETF (SMH - Free Report) and PowerShares Dynamic Semiconductors Fund (PSI - Free Report) have gained more than 7% in the past three months. The strength might continue this earnings season, given the series of positive earnings surprises and positive estimate revisions.
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.
Most of the chipmakers like Texas Instruments (TXN - Free Report) , Qualcomm (QCOM - Free Report) , Intel (INTC - Free Report) , NVIDIA (NVDA - Free Report) and Applied Materials (AMAT - Free Report) are poised to come up with an earnings surprise this quarter. Let’s delve into the earnings picture of these companies that have a higher allocation in the abovementioned ETFs and the power to move the funds up or down as Q2 earnings unfold. SOXX is largely concentrated on the five firms, with a combined share of 35.9%, followed by 30.3% for SMH and 24.3% for PSI.
Inside Our Earnings Prediction
Texas Instruments is set to report on Jul 24, after market close. It has a Zacks Rank #2 and an Earnings ESP of +0.96%, indicating higher chances of beating estimates this quarter. The earnings estimate for the yet-to-be-reported quarter has gone up by a penny in the past 30 days. The earnings surprise track over the past four quarters is also good, with an average beat of 7.48%. The stock has a VGM Score of B (see: all the Technology ETFs here).
Qualcomm has a Zacks Rank #3 and an Earnings ESP of -1.24%, indicating a lower chance of beating estimates this quarter. The Zacks Consensus Estimate for second-quarter 2018 has been revised downward by a couple of cents over the past month. However, the stock delivered a positive surprise of 9.19% in the last four quarters. It has a VGM Score of C. The company is expected to report results after the closing bell on Jul 25.
Intel is slated to release earnings after market close on Jul 26. It has a Zacks Rank #1 and an Earnings ESP of 0.00%, making surprise prediction difficult. The stock has seen a positive earnings estimate revision by a penny over the past 30 days for the to-be-reported quarter and delivered a positive earnings surprise of 20.06% on average over the last four quarters. It has a VGM Score of A.
NVIDIA, expected to report on Aug 16, has a Zacks Rank #3 and an Earnings ESP of +0.48%, indicating reasonable chances of beating estimates this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 40.10% and saw no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a VGM Score of C.
Applied Materials has a Zacks Rank #3 and an Earnings ESP of +0.95%, indicating a reasonable chance of beating estimates this quarter. Its earnings surprise track over the past four quarters is good, with an average beat of 5.76%. The stock witnessed no earnings estimate revisions over the past 30 days for the to-be-reported quarter. The company has a VGM Score of A and is slated to report on Aug 16 (read: Why This Semiconductor ETF Lost Almost Half of its Assets).
Conclusion
With most of the companies in the space likely to beat on earnings and witnessing positive estimate revisions, semiconductor ETFs are poised to surge higher in the weeks ahead. Further, SOXX and PSI have a Zacks ETF Rank #1 while SMH has a Zacks ETF Rank #2, suggesting that investors could stuff these funds in the earnings season for outperformance.
See: Here's Why This FAANG Powered ETF Can Keep Outperforming
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