The third-quarter (Q3) earnings growth may be negative this year, with the S&P 500 likely to post negative 5.1% growth, per the Zacks Earnings Trends issued on Oct 9, 2019. However, the revenue growth picture is assuring.
The bottom line may be investors’ top focus going into an earnings season, but the top line probably tells you more about the inherent strength of a company.
Why to Follow Revenue Growth This Reporting Cycle?
For Q3, total earnings are expected to decline 5.1% from the same period last year on 4.2% higher revenues. Earnings growth will likely slacken from Q2's 0.7% rate while revenue growth will slow down slightly (last quarter’s was 4.6%).
For Q3, 11 out of the Zacks classified 16 sectors of the S&P 500 will likely witness negative growth in earnings while only two sectors are expected to see revenue recession.
Further, investors should note that sales are harder to be influenced in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak for its core strength. But it is harder for a company to mold its revenue figure.
Below we highlight a few sectors and their related ETFs that could be used to book some profits on revenue growth potential.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
Revenues are expected to expand 10.3% in Q3 followed by 13.0% expansion in Q2. An upbeat job market, a dovish Fed, subdued oil prices and investors’ home-buying spree corroborates a steady economy and thus a smooth ride for discretionary ETFs.
Retail – Invesco Dynamic Retail ETF
Revenues of the sector are expected to expand 8.4% in Q3 followed by 7.6% expansion in Q2. It is also expected to see an uptick (up 3.4%) in earnings. The surge in online shopping throughout the year, thanks to a deluge of deals, has kept the space steady.
Amazon’s (AMZN) Prime Day in July, for example, has compelled more retailers like Target (TGT - Free Report) , Walmart (WMT - Free Report) , eBay (EBAY - Free Report) , Nordstrom (JWN - Free Report) and Kohl’s (KSS - Free Report) to offer steep discounts on a variety of goods (read: Is Holiday Season Frenzy Fading for Retail ETFs?).
Consumer Staples – Consumer Staples Select Sector SPDR Fund (XLP - Free Report)
Staples stocks have also been doing good lately. Still-decent U.S. economy and low rates of interest have been propelling the sector (read: Low-Beta ETFs to Tap Amid Stock Market Selloff).
Finance – Financial Select Sector SPDR Fund (XLF - Free Report)
The sector is expected to witness revenue growth of 6.5% in Q3, after 8.2% growth in Q2. The revenue growth could be recorded despite Fed rate cuts and a low-rate environment (read: 4 Sector ETFs & Stocks to Bet on Ahead of Q3 Earnings).
Medical – ARK Genomic Revolution Multi-Sector ETF (ARKG - Free Report)
The space is thriving with mergers and acquisitions in the biotech space. Plus, incessant drug approvals and rising demand from emerging markets are pushing the sector higher. The sector is expected to report 5.1% revenue growth on top of 6.6% recorded in Q2 (read: ETFs Poised to Benefit from Gene Editing Revolution).
Utilities – Utilities Select Sector SPDR Fund (XLU - Free Report)
U.S. utilities sector is thriving with several developments. One of the most significant developments in the space is the “awareness of energy efficiency programs, and implementation of the same in residential and commercial buildings and industrial plants.” The sector is expected to log 4% revenue growth rate in Q3, rebounding from 0.1% negative growth rate recorded in Q2.
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