Back to top

Image: Bigstock

What Lies Ahead for Materials ETFs in Q1 Earnings?

Read MoreHide Full Article

The materials sector has rebounded nicely from the lows hit in late March with the recent market rally. The popular ETFs — Materials Select Sector SPDR (XLB - Free Report) , Vanguard Materials ETF (VAW - Free Report) , iShares U.S. Basic Materials ETF (IYM - Free Report) and Fidelity MSCI Materials Index ETF (FMAT - Free Report) — have gained nearly 11% each in a month. The trend might reverse as Q1 earnings unfold given that the sector is expected to post earnings decline of 35.2% (read: 5 Low-Cost Top-Ranked ETFs to Tap at Discounted Prices).

Let’s delve into the earnings picture of some of the largest companies in the materials space that would drive the performance of these funds in the coming weeks as these dominate their portfolio. These include Linde plc (LIN - Free Report) , Newmont Corporation (NEM - Free Report) , Ecolab Inc. (ECL - Free Report) , DuPont de Nemours Inc. (DD - Free Report) , Dow Inc. (DOW - Free Report) , and PPG Industries, Inc. (PPG - Free Report) . These stocks collectively account for 53.5% share in IYM, 46.8% in XLB, 35.9% in VAW and 37.5% in FMAT.

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction of These Stocks

Linde has a Zacks Rank #4 and an Earnings ESP of -2.07%. It has witnessed negative earnings estimate revision of 5 cents over the past 30 days for the to-be-reported quarter. However, the stock’s earnings surprise track over the past four quarters is good with an average positive surprise of 6.51%. The stock has a Growth Score of A. The company will report earnings on May 7 before market open.

Newmont, which is expected to release earnings on May 5, has a Zacks Rank #1 and an Earnings ESP of 0.00%. It has seen negative earnings estimate revision of 10 cents over the past month for the to-be-reported quarter and delivered negative earnings surprise of 6.69% in the last four quarters. The stock has a solid Growth Score of B (read: 5 Reasons Why Gold Mining ETFs & Stocks Have More Room to Run).

Ecolab is expected to release earnings on Apr 28 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -1.27%. It has seen negative earnings estimate revision of couple of cents over the past month for the to-be-reported quarter and delivered negative earnings surprise of 0.02% in the last four quarters. The stock has a solid Growth Score of B.

DuPont has a Zacks Rank #3 and an Earnings ESP of +1.30%. The company has seen no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered a positive earnings surprise of 8.20% on average over the last four quarters. Additionally, the stock has a solid Value Score of B. The company is scheduled to report earnings on May 5 before the opening bell.

PPG Industries has a Zacks Rank #3 and an Earnings ESP of -1.84%. It has seen negative earnings estimate revision of 11 cents over the past month for the to-be-reported quarter but has delivered positive earnings surprise over the last four quarters, with an average beat of 3.98%. The stock has a Growth Score of A. The company is schedule to report on Apr 27 after market close (see: all the Materials ETFs here).

Dow is expected to release earnings on Apr 30 before the opening bell. It has a Zacks Rank #5 and an Earnings ESP of -8.35%. It has seen negative earnings estimate revision of 7 cents over the past month for the to-be-reported quarter but delivered positive earnings surprise of 10.99% in the last four quarters. The stock has a solid Growth Score of A.

Summing Up

While the major players seem to have less chances of beating earnings estimates, investors could still bet on Q1 earnings via ETFs. This is because the funds have spread out exposure to a number of firms in various types of industries like chemicals and metals, suggesting that the space can easily counter shocks from some of the industry’s biggest components.

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 >>

Published in