The materials sector has shown remarkable performance after the reopening of the economy as industrials and business activities have picked up. The popular ETFs — Materials Select Sector SPDR XLB, Vanguard Materials ETF VAW, iShares U.S. Basic Materials ETF IYM and Fidelity MSCI Materials Index ETF FMAT — have gained at least 26% each over the past three months.
The solid trend is continuing as Q2 unfolds. This is especially true as two big companies PPG Industries Inc. PPG and Dow Inc. DOW reported robust results, beating estimates on both top and bottom lines. Both companies make up for the top 10 holdings in the above-mentioned funds (read: 5 ETFs At the Forefront of the Great Rotation).
Let’s delve into the earnings picture of some of the other 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, Newmont Corporation NEM, Ecolab Inc. ECL, and DuPont de Nemours Inc. DD. These stocks collectively account for 43.1% share in IYM, 37.1% in XLB, 30.9% in VAW and 30.9% 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 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 #3 and an Earnings ESP of 0.00%. It witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter. The stock’s earnings surprise track over the past four quarters is good with an average surprise of 4.89%. The stock has a Growth Score of A. The company will report earnings on Jul 30 before market open (read: Q2 Earnings Likely To Plunge: Invest in These Sector ETFs).
Newmont, which is expected to release earnings on Jul 30, has a Zacks Rank #3 and an Earnings ESP of +10.02%. It has seen negative earnings estimate revision of 3 cents over the past month for the to-be-reported quarter and delivered negative earnings surprise of 15.16% in the last four quarters. The stock has a solid Growth Score of A.
Ecolab is expected to release earnings on Jul 28 before the opening bell. It has a Zacks Rank #5 and an Earnings ESP of -12.96%. It has seen negative earnings estimate revision of 4 cents over the past month for the to-be-reported quarter but delivered earnings surprise of 1.14% in the last four quarters. The stock has a solid Growth Score of C.
DuPont has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company has seen no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered earnings surprise of 3.50% on average over the last four quarters. Additionally, the stock has a solid Growth Score of B. The company is scheduled to report earnings on Jul 30 before the opening bell (see: all the Materials ETFs here).
Summing Up
While the major players seem to have less chances of beating earnings estimates, investors could still bet on Q2 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.
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