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Can Q2 Earnings Power Semiconductor ETFs?

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After a strong start to the year, the semiconductor sector has been hit by the escalating Sino-US trade war and the U.S. ban on Huawei in recent months. This is because chipmakers have a lot of exposure in China. As such, iShares PHLX Semiconductor ETF (SOXX - Free Report) , VanEck Vectors Semiconductor ETF (SMH - Free Report) and First Trust NASDAQ Semiconductor ETF (FTXL - Free Report) have slipped 2%, 1% and 3.5%, respectively, over the past three months.



This trend might reverse going into the earnings season given that most stocks are expected to beat on earnings (read: Semiconductor ETFs: What Investors Need to Know).  

Some well-known players in the space like Texas Instruments (TXN - Free Report) , Intel (INTC - Free Report) , Qualcomm (QCOM - Free Report) , NVIDIA (NVDA - Free Report) and Applied Materials (AMAT - Free Report) are expected to report earnings this week and in the coming days. Let’s delve into the financial picture of the companies that have a higher allocation in the above-mentioned 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 35.7% followed by 32.6% for SMH and 25% for FTXL.

Our proven model conclusively shows that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP significantly increase the chances of predicting an earnings beat, while those with a Zacks Rank #4 or a 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 Earnings Prediction

Texas Instruments is set to report on Jul 23, after market close. It has a Zacks Rank of 4 and an Earnings ESP of +1.65%. The Zacks Consensus Estimate for second-quarter earnings has been steady over the past 30 days. The earnings surprise track over the last four quarters has been good, the average beat being 3.41%. The stock has a VGM Score of B (see: all the Technology ETFs here).

Intel is slated to release earnings figures after market close on Jul 25. It has a Zacks Rank #3 and an Earnings ESP of -0.49%, indicating slim chances of an estimate beat this time around. The stock saw no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered a positive surprise of 8.50% on average over the preceding four quarters. It has a favorable VGM Score of B.

Qualcomm has a Zacks Rank #5 and an Earnings ESP of 0.00%. The stock witnessed no earnings estimate revision over the past 30 days and came up with a positive surprise of 17.56% in the trailing four quarters. It has a VGM Score of B. The company is expected to report earnings numbers after the closing bell on Jul 31.

NVIDIA, expected to report on Aug 15, is a Zacks #3 Ranked player and has an Earnings ESP of +8.17%. This combination also suggests reasonable chances of estimate beat this reporting cycle. The company pulled off positive surprises in all the previous four quarters, the average being 3.94%. It saw positive earnings estimate revision of a penny over the past month for the to-be- reported quarter. The stock has an unattractive VGM Score of F.

Applied Materials is a #4 Ranked player and has an Earnings ESP of 0.00%. Its earnings surprise history over the preceding four quarters has been impressive, the average beat being 3.27%. The stock witnessed no earnings estimate revision over the past 30 days for the quarter to be reported. The company has a VGM Score of B and is slated to report earnings on Aug 15 (read: Tech Stocks Log Seven-Year Best Spell: ETF Winners).

Conclusion

As most companies in this space are likely to deliver a positive earnings surprise, the semiconductor ETFs might continue to see smooth trading in the weeks ahead. Further, SOXX and SMH have a Zacks ETF Rank of 2 while FTXL has a Zacks ETF Rank of 3, implying room for an upside.

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