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4 Sector ETFs & Stocks for Bountiful Gains in November
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After a scary October filled with myriad woes like rising interest rates, Italy’s political turbulence, Saudi tensions, tech sell-off, escalating U.S.-China trade war and uncertainty regarding mid-term election, November is expected to be a good month for Wall Street, leading to a strong rebound in U.S. stocks (read: ETF Areas That Spooked Investors in October).
This is because, historically, November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Additionally, November has been the third best month for the Dow since 1950 and the Nasdaq since 1971. The month has also been the second best for the S&P 500 for nearly 70 years and the small-capitalization Russell 2000 Index since 1979.
Per Dow Jones Data Group, Dow Jones returned 1.44% in November on average based on data going back to 1970 with 33 out of 48 Novembers ending up, or 68.75% of the times. Nasdaq returned an average of 1.62% based on data going back to 1971 with 32 out of 47 sessions ending higher, or 68.08% of the times. S&P 500 S&P has gained 1.32% on average, rising in 33 out of 48, or 68.75% of the times, in Novembers since 1970.
The bullish picture for November is backed by strong earnings and booming growth. Total earnings for the 313 S&P 500 members that have reported results so far are up 22.7% from the same period last year on 8.4% higher revenues, with 78% beating EPS estimates and 62.6% beating revenue estimates. Though earnings and revenue growth pace is still very strong, it has started decelerating from the first half’s elevated level with Q3 revenue beat being the lowest since the fourth quarter of 2016. Additionally, a slew of upbeat economic data on the back of consumer confidence and GDP growth reflects strengthening economy (read: 3 Sector ETFs & Stocks That Survived October Upheaval).
Further, mid-term election will add to the strength. History suggests 100% chance of post mid-term election rally. According to the Marketwatch article, markets tend to rally near the election, when the results are more predictable, and continue to move upward after the votes are tallied. In fact, since 1950, the average one-year return following a midterm election is 15%, more than double the average return in all other years over the same timeframe. In the years Democrats gained seats in Congress, markets gained 14.4% for the next 12 months. In the years Republicans gained seats, the market rallied 11% for the next 12 months. This suggests that whichever party comes in, market tends to rally.
Moreover, seasonality plays a vital role in the stock market surge during the six-month period (from November to April). Cyclical stocks from consumer discretionary, industrials, financials, and technology tend to benefit the most. This is especially true as investors look for more growth rather than being defensive when cyclical trading starts. This suggests that investors should buy stocks during this bustling time in the market.
As a result, we have highlighted one ETF and stock from each of these four sectors that could make a great play for investors. All these ETFs and stocks were beaten down badly in the October rout but have a top Zacks Rank #1 (Strong Buy) or #2 (Buy). For the stocks, we have used our Style Score to zero in on stocks with a Growth Score of A, in a top-ranked Zacks industry (top 45%), and with an estimated double-digit earnings growth for the current year (see: all the Top Ranked ETFs).
Consumer Discretionary
Vanguard Consumer Discretionary ETF (VCR - Free Report) : This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 326 stocks in its basket with heavy concentration on Amazon (AMZN - Free Report) at 23.2%. Internet & direct marketing retail is the top sector with more than one-fourth of the portfolio while home improvement retail accounts for 10.7% share. VCR charges investors 10 bps in annual fees while volume is moderate at nearly 91,000 shares a day. The product manages an asset base of about $2.9 billion and has shed nearly 12% over the past month. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Amazon Beats on Q3 Earnings, Guides Weak: ETFs to Watch).
lululemon athletica inc. (LULU - Free Report) : Based in Vancouver, Canada, lululemon athletica designs and retails athletic clothing for women, men, and female youth. The stock shed about 12.9% over the past month and has an estimated earnings growth rate of 38.2% for the fiscal year (ending January 2019). It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Industrials
Industrial Select Sector SPDR (XLI - Free Report) : This is the most popular ETF in the industrial space with AUM of $11.5 billion and average daily volume of around 12.6 million shares. The fund follows the Industrial Select Sector Index, holding 72 stocks in its basket with each accounting for less than 9% of the assets. About one-fourth of the assets is allocated to aerospace & defense while industrial conglomerates, machinery, and road & rail make up for double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook. It is down 11.5% in the past month.
Rockwell Automation Inc. (ROK - Free Report) : Based in Milwaukee, WI, Rockwell Automation is a leading global provider of industrial automation power, control and information solutions. The company has an estimated earnings growth rate of 11.79% for fiscal year (ending September 2019). The stock has lost 13.2% in a month and has a Zacks Rank #2 (read: Industrial ETFs in Focus Post Q3 Earnings).
Financials
Financial Select Sector SPDR Fund (XLF - Free Report) : This is the most popular financial ETF in the space with AUM of $28.4 billion and average daily volume of nearly 57.3 million shares. The fund follows the Financial Select Sector Index, holding 67 stocks in its basket with double-digit allocation to the top two firms. In terms of industrial exposure, banks take the top spot at 44.3% while capital markets, insurance, and diversified financial services make up for double-digit exposure each. The fund charges 13 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook. It has lost 9.8% in a month.
Enova International Inc. (ENVA - Free Report) : Based in Chicago, IL, Enova International is a provider of online financial services. It offers loans to customers in the United States and in the United Kingdom, Australia and Canada. The stock has delivered negative returns of about 14.9% in the same time frame and has a solid estimated earnings growth of 88.3%. It carries a Zacks Rank #1.
Technology
iShares U.S. Technology ETF (IYW - Free Report) : This ETF offers exposure to 152 U.S. electronics, computer software and hardware, and informational technology companies by tracking the Dow Jones US Technology Index. The fund has amassed $4 billion in its asset base and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 195,000 shares in a day. Software & services, and tech hardware & equipment takes the largest share at 35.7% and 26.8%, respectively while media & entertainment, and semiconductors & semiconductor equipment round off the next two spots. The fund has a Zacks ETF Rank #1 with a Medium risk outlook and has shed 10.6% over the past month (read: Why to Cash in on the Slump & Grab Tech ETFs).
Palo Alto Networks, Inc. (PANW - Free Report) : Based in Santa Clara, CA, Palo Alto Networks offers a network security platform that allows enterprises, service providers, and government entities to secure their networks. The stock has an estimated earnings growth of 26.1% for fiscal year (ending August 2019). It has lost 17.3% in the same time frame and has a Zacks Rank #2.
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4 Sector ETFs & Stocks for Bountiful Gains in November
After a scary October filled with myriad woes like rising interest rates, Italy’s political turbulence, Saudi tensions, tech sell-off, escalating U.S.-China trade war and uncertainty regarding mid-term election, November is expected to be a good month for Wall Street, leading to a strong rebound in U.S. stocks (read: ETF Areas That Spooked Investors in October).
This is because, historically, November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Additionally, November has been the third best month for the Dow since 1950 and the Nasdaq since 1971. The month has also been the second best for the S&P 500 for nearly 70 years and the small-capitalization Russell 2000 Index since 1979.
Per Dow Jones Data Group, Dow Jones returned 1.44% in November on average based on data going back to 1970 with 33 out of 48 Novembers ending up, or 68.75% of the times. Nasdaq returned an average of 1.62% based on data going back to 1971 with 32 out of 47 sessions ending higher, or 68.08% of the times. S&P 500 S&P has gained 1.32% on average, rising in 33 out of 48, or 68.75% of the times, in Novembers since 1970.
The bullish picture for November is backed by strong earnings and booming growth. Total earnings for the 313 S&P 500 members that have reported results so far are up 22.7% from the same period last year on 8.4% higher revenues, with 78% beating EPS estimates and 62.6% beating revenue estimates. Though earnings and revenue growth pace is still very strong, it has started decelerating from the first half’s elevated level with Q3 revenue beat being the lowest since the fourth quarter of 2016. Additionally, a slew of upbeat economic data on the back of consumer confidence and GDP growth reflects strengthening economy (read: 3 Sector ETFs & Stocks That Survived October Upheaval).
Further, mid-term election will add to the strength. History suggests 100% chance of post mid-term election rally. According to the Marketwatch article, markets tend to rally near the election, when the results are more predictable, and continue to move upward after the votes are tallied. In fact, since 1950, the average one-year return following a midterm election is 15%, more than double the average return in all other years over the same timeframe. In the years Democrats gained seats in Congress, markets gained 14.4% for the next 12 months. In the years Republicans gained seats, the market rallied 11% for the next 12 months. This suggests that whichever party comes in, market tends to rally.
Moreover, seasonality plays a vital role in the stock market surge during the six-month period (from November to April). Cyclical stocks from consumer discretionary, industrials, financials, and technology tend to benefit the most. This is especially true as investors look for more growth rather than being defensive when cyclical trading starts. This suggests that investors should buy stocks during this bustling time in the market.
As a result, we have highlighted one ETF and stock from each of these four sectors that could make a great play for investors. All these ETFs and stocks were beaten down badly in the October rout but have a top Zacks Rank #1 (Strong Buy) or #2 (Buy). For the stocks, we have used our Style Score to zero in on stocks with a Growth Score of A, in a top-ranked Zacks industry (top 45%), and with an estimated double-digit earnings growth for the current year (see: all the Top Ranked ETFs).
Consumer Discretionary
Vanguard Consumer Discretionary ETF (VCR - Free Report) : This fund follows the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index and holds 326 stocks in its basket with heavy concentration on Amazon (AMZN - Free Report) at 23.2%. Internet & direct marketing retail is the top sector with more than one-fourth of the portfolio while home improvement retail accounts for 10.7% share. VCR charges investors 10 bps in annual fees while volume is moderate at nearly 91,000 shares a day. The product manages an asset base of about $2.9 billion and has shed nearly 12% over the past month. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Amazon Beats on Q3 Earnings, Guides Weak: ETFs to Watch).
lululemon athletica inc. (LULU - Free Report) : Based in Vancouver, Canada, lululemon athletica designs and retails athletic clothing for women, men, and female youth. The stock shed about 12.9% over the past month and has an estimated earnings growth rate of 38.2% for the fiscal year (ending January 2019). It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Industrials
Industrial Select Sector SPDR (XLI - Free Report) : This is the most popular ETF in the industrial space with AUM of $11.5 billion and average daily volume of around 12.6 million shares. The fund follows the Industrial Select Sector Index, holding 72 stocks in its basket with each accounting for less than 9% of the assets. About one-fourth of the assets is allocated to aerospace & defense while industrial conglomerates, machinery, and road & rail make up for double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook. It is down 11.5% in the past month.
Rockwell Automation Inc. (ROK - Free Report) : Based in Milwaukee, WI, Rockwell Automation is a leading global provider of industrial automation power, control and information solutions. The company has an estimated earnings growth rate of 11.79% for fiscal year (ending September 2019). The stock has lost 13.2% in a month and has a Zacks Rank #2 (read: Industrial ETFs in Focus Post Q3 Earnings).
Financials
Financial Select Sector SPDR Fund (XLF - Free Report) : This is the most popular financial ETF in the space with AUM of $28.4 billion and average daily volume of nearly 57.3 million shares. The fund follows the Financial Select Sector Index, holding 67 stocks in its basket with double-digit allocation to the top two firms. In terms of industrial exposure, banks take the top spot at 44.3% while capital markets, insurance, and diversified financial services make up for double-digit exposure each. The fund charges 13 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook. It has lost 9.8% in a month.
Enova International Inc. (ENVA - Free Report) : Based in Chicago, IL, Enova International is a provider of online financial services. It offers loans to customers in the United States and in the United Kingdom, Australia and Canada. The stock has delivered negative returns of about 14.9% in the same time frame and has a solid estimated earnings growth of 88.3%. It carries a Zacks Rank #1.
Technology
iShares U.S. Technology ETF (IYW - Free Report) : This ETF offers exposure to 152 U.S. electronics, computer software and hardware, and informational technology companies by tracking the Dow Jones US Technology Index. The fund has amassed $4 billion in its asset base and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 195,000 shares in a day. Software & services, and tech hardware & equipment takes the largest share at 35.7% and 26.8%, respectively while media & entertainment, and semiconductors & semiconductor equipment round off the next two spots. The fund has a Zacks ETF Rank #1 with a Medium risk outlook and has shed 10.6% over the past month (read: Why to Cash in on the Slump & Grab Tech ETFs).
Palo Alto Networks, Inc. (PANW - Free Report) : Based in Santa Clara, CA, Palo Alto Networks offers a network security platform that allows enterprises, service providers, and government entities to secure their networks. The stock has an estimated earnings growth of 26.1% for fiscal year (ending August 2019). It has lost 17.3% in the same time frame and has a Zacks Rank #2.
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 >>