The Wall Street had a sizzling start to 2018 as Trump's tax overhaul bolstered the optimism over strong corporate earnings and an improving economy. With the Q4 earnings season underway, investors are betting that the new tax legislation will result in big savings for the corporations, giving a boost to earnings.
The Dow Jones Industrial Average has been the biggest beneficiary of the Trump era and thus, its proxy version, SPDR Dow Jones Industrial Average ETF DIA , is in the spotlight. After climbing 25.1% last year, the Dow Jones soared another 2.3% in the initial days of trading (read: 7 Biggest ETF Stories of 2017 to Continue in 2018 ).
DIA in Focus
This is one of the largest and most-popular ETFs in the large-cap space with AUM of over $23.6 billion and average daily volume of 2.8 million shares. Holding 30 blue chip stocks, the fund is widely spread across components with none holding more than 8.6% share. Industrials (23.8%), information technology (17.1%), financials (16.2%), consumer discretionary (14.7%) and healthcare (12.6%) are the top five sectors. DIA charges 17 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Let's delve into the Q4 earnings picture that will likely set up the movement of the fund in the coming days.
Q4 Earnings Trends
Total Q4 earnings are expected to be up 8.8% from the same period last year on 7% higher revenues. This is higher than the Q3 earnings growth of 6.7% on 5.9% revenue growth. Additionally, the revision trend has been favorable with earnings estimates holding up better relative to other comparable periods. The earnings estimates for Q4 have moved up 2 percentage points from 8.6% at the start of the period.
Nearly one-fourth of the blue chip firms are expected to announce their results this week and in the next. JPMorgan Chase JPM is expected to release its results on Jan 12 (read: 4 ETFs & Stocks from Favorite Sectors for Q4 Earnings ).
UnitedHealth Group UNH is scheduled to report on Jan 16, Goldman GS on Jan 17, International Business Machines IBM and American Express AXP and will report on Jan 18 each. Other companies like Procter & Gamble Company PG and Johnson & Johnson JNJ will come up with their reports on Jan 23, while General Electric GE have their earnings release slated for Jan 24.
Earnings Whisper
According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 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 .
JPMorgan has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The company delivered an average positive earnings surprise of 12.75% in the last four quarters and saw negative earnings estimate revision of a couple of cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Style Score of F.
UnitedHealth has a Zacks Rank #3 and an Earnings ESP of -0.17%, indicating less chances of beating estimates this quarter. The stock has seen upward earnings estimate revision of a penny for the yet-to-be-reported quarter and delivered a positive earnings surprise of 4.38% in the last four quarters. The stock has a top VGM Style Score of A.
Goldman has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. Though the earnings surprise track over the past four quarters is robust with an average positive surprise of 9.12%, the company witnessed negative earnings estimate revision of 11 cents over the past 90 days for the yet-to-be-reported quarter. It has a miserable VGM Style Score of F (read: Prepare for 2018 With These ETFs ).
International Business Machines has a Zacks Rank #3 and an Earnings ESP of +0.24%, indicating a reasonable chance of beating estimates this quarter. The stock delivered a positive earnings surprise in the last four quarters, with an average beat of 3.39% but saw no earnings estimate revision in the past 90 days for the to-be-reported quarter. The stock has a good VGM Score of B.
American Express also has a Zacks Rank #3 and an Earnings ESP of +0.32%, indicating a reasonable chance of beating estimates this quarter. The company delivered positive earnings surprises in three of the last four quarters, with an average beat of 0.07% and saw positive earnings estimate revision by seven cents over the past three months for the to-be-reported quarter. The stock has a good VGM Style Score of B.
Procter & Gamble Company has a Zacks Rank #3 and an Earnings ESP of +0.73%, indicating reasonable chances of beating estimates this quarter. The earnings surprise track over the last four quarters is good, with an average beat of 3.72%. The stock witnessed no earnings estimate revision in the past 90 days for the to-be-reported quarter and has a VGM Style Score of B.
Johnson & Johnson also has reasonable chances of beating estimates this quarter with a Zacks Rank #3 with an Earnings ESP of +0.08%. It witnessed negative earnings estimate revision of a penny in the past three months for the to-be-reported quarter but delivered a positive earnings surprise of 3.12% in the last four quarters. The stock has a VGM Style Score of C.
General Electric has a Zacks Rank #5 and an Earnings ESP of -0.57%. The company suffered a huge negative earnings surprise of 40.82% last quarter and witnessed negative earnings estimate revision of 25 cents in the past 90 days for the yet-to-be-reported quarter. It has a VGM Style Score of D (read: Steer Clear of GE, Bet on These Industrial ETFs Instead ).
Bottom Line
With earnings of most blue-chip companies scheduled over the coming weeks and the stock market extending its bull run, investors should closely monitor the movement of the Dow ETF and grab any opportunity from a surge in any of the 30 stock prices.
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International Business Machines Corporation (IBM): Free Stock Analysis Report
J P Morgan Chase & Co (JPM): Free Stock Analysis Report
Johnson & Johnson (JNJ): Free Stock Analysis Report
General Electric Company (GE): Free Stock Analysis Report
Goldman Sachs Group, Inc. (The) (GS): Free Stock Analysis Report
American Express Company (AXP): Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
Procter & Gamble Company (The) (PG): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
