Although materials sector has long been ignored by investors, it has started to gain momentum in the recent months, thanks to a pickup in inflation, rebound in industrial activity and continued economic growth. Additionally, strong expectation for Q2 earnings is boosting confidence in the sector.
As a result, 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 more than 1% in a month. The trend is likely to continue, given that the sector is expected to be the second largest contributor to S&P 500 earnings with growth of 52% , behind energy (read: 5 Excellent ETF Plays as Q2 Earnings Cycle Begins ).
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 DowDuPont DWDP , Praxair PX , Air Products & Chemicals APD and LyondellBasell Industries LYB . These stocks collectively account for 43.3% share in IYM, 42.7% in XLB, 31.5% in VAW and 31.1% in FMAT.
According to our surprise prediction methodology, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP is likely to come up with an earnings beat. A Zacks Rank #4 or 5 (Sell rated) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. 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
DowDuPont has a Zacks Rank #3 and an Earnings ESP of +0.26%. Though the company has seen negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter, it delivered a positive earnings surprise of 14.18% on average over the last four quarters. Additionally, the stock has an unimpressive VGM Score of F. The company is scheduled to report earnings on Aug 2 before the opening bell.
Praxair has a Zacks Rank #4 and an Earnings ESP of +0.06%. It witnessed no earnings estimate revision over the past 90 days for the to-be-reported quarter. Its earnings surprise track over the past four quarters is good with an average positive surprise of 3.69%. The stock has a VGM Score of C. Praxair will report earnings on Jul 26 before market open (see: all the Materials ETFs here ).
Air Products & Chemicals has a Zacks Rank #4 and an Earnings ESP of -0.50%. It has seen negative earnings estimate revision of a penny 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 4.22%. The stock has a VGM Score of B. The company is schedule to report on Jul 26 before market open.
LyondellBasell is expected to release earnings on Aug 3 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -1.48%. It has seen negative earnings estimate revision of three cents over the past month for the to-be-reported quarter but delivered positive earnings surprise of 5.66% in the last four quarters. The stock has a solid VGM Score of B.
While the major players seem to have less chances of beating earnings estimates, investors could still bet on the strong expected earnings growth 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. Additionally, the abovementioned ETFs have a favorable Zacks Rank #3.
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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.