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Eyeing Q3 Revenue Growth Potential? Try These Sector ETFs

The ETF industry saw height of volatility in the third quarter of 2015 thanks to speculations over Fed tightening, global growth worries, a commodity market crash, horrendous equity sell-off in China and its shockwaves around the world. On the other hand, a strong greenback and a weak energy sector were the other permanent dampeners in the first three quarters of 2015.

These evils are also haunting the Q3 earnings season, which has just picked up pace. Though an accommodative Fed and the probability of a delayed rate hike following momentum loss in the U.S. economy charged up stocks to start Q4, issues of the prior quarter will have a significant impact, mostly bad, on the corporate world. Expectations for both earnings and revenue growth remain negative for the quarter.

As per the Zacks Earning Trends issued on October 14, 2015, earnings for the S&P 500 are expected to be down 4.9% in Q3 while revenues are likely to decline 5.6%. However, some sectors might surprise, snapping the downtrend and offering decent returns in the ongoing quarter, even if volatility follows through.

While looking for these outstanding performers, we would like to highlight those sectors that are likely to post strong revenue gains. This is because; sales are harder to influence an income statement than earnings. A company can land up on decent earnings numbers by adapting cost-cutting or some other measures which do not speak for its core strength. But it is harder for a company to mold its revenue figures.

Below, we highlight three lucrative sector ETFs that could be used to book some profits in this whimsical market. Each sector has positive and strong revenue growth estimates for Q3 and offers intriguing fundamentals to protect investors' portfolios in a dubious global investing backdrop:

iShares U.S. Medical Devices ETF (IHI)

The Medical or Health Care sector appears the best positioned with an 8.5% revenue growth estimate, the best in the universe of 16 S&P sectors categorized by Zacks. Rise in mergers and acquisitions, the Affordable Care Act, an aging global population and the sector's non-cyclical nature could earn its some solid gains (read: Obamacare is Here to Stay: 3 ETFs to Buy ).

This is especially true as skepticism piles up in theglobal market Investors should note that pharma and some biotech companies recently suffered a horrendous sell-off on pricing concerns. On the one hand, the medical device corner showed greater resilience in this tumultuous phase, and on the other hand the sell-off made the entire sector affordable. This should go in its favor.

As a result, medical devices ETFs like IHI should log greater gains. XHS is up 2.5% so far this year (as of October 15, 2015) and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 2 ETFs Rising to Rank #1 This Earnings Season ).

SPDR S&P Retail ETF ( XRT )

Though retail sales remained soft lately as evident by the lower-than-expected sales data in September, the revenue growth prospect remains strong. Apart from medical, this is the only sector expected to see revenue growth in high single digits.

To add to this, the Fed lift-off talk is now off the table. The Fed is also likely to opt for a slower rate hike trajectory once the step is actually taken, most probably sometime in early 2016. This should favor a cyclical sector like retail. Moreover, the still-subdued oil price is another tailwind for the sector as it would add up to consumers' fuel price savings and encourage them to buy more discretionary products. However, lackluster job data is undoubtedly a concern for the sector (read: Retail ETFs Hit Hard by Soft September Sales ).

Retail/Wholesale is projected to register 7.3% revenue growth in Q3, the second best in the pack. XRT is down about 5% so far this year (as of October 15, 2015) and has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Trust - iShares North American Tech ETF (IGM)

Tech stocks are giving robust performances of late on higher global IT spending, increased usage of smartphones, tablets or other gadgets, decent valuation and the pile of cash the companies are sitting on (read: 3 Promising Tech ETFs Jumping to Rank #2 from 4 ).

As of now, the Zacks Earnings Trend predicts 3.7% expansion in revenues from tech companies, the third best growth rate. MTK is up about 5% so far this year (as of October 15, 2015). The fund currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

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ISHARS-US MED D (IHI): ETF Research Reports

SPDR-SP RET ETF (XRT): ETF Research Reports

ISHARS-NA TECH (IGM): ETF Research Reports

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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.

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