4 Favorite Sectors Of Q3 Earnings And Their ETFs & Stocks

The Q3 earnings season is underway with major banks set to report this week. Earnings for the S&P 500 index are expected to grow 2.3% from the same period last year on 5% higher revenues, as per the latest Earnings Trends.

However, earnings growth is on track to be the lowest this year after double-digit growth in each of the first two quarters and with high single-digit expected earnings growth in the last quarter. This is especially true as twin attacks by Hurricanes Harvey and Irma have taken their toll on many industries such as insurance, energy, airlines and autos. Per Moody’s Analytics, the two storms may lead to $150-$200 billion in damages (read: Hurricanes Impact on Earnings ETFs?).

While earnings estimates for Q3 have declined from 6.3% at the start of the period, the magnitude of negative revision is lower than the recent quarters. Of the 16 Zacks sectors, seven are likely to be contributors to earnings growth, with energy leading the way. Like the last reporting cycle, the energy sector has the strongest growth projection of 122.3% for Q3, primarily reflecting easier comparisons. This is followed by earnings growth of 16.1% for conglomerates, 9.7% for technology, 8.7% for industrial products, and 8.3% for construction.

Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the Q3 earnings season unfolds. Each of these ETFs and stocks have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). For stocks, we have added the extra flavor of a positive Earnings ESP. This is because stocks with this combination have a 70% chance of beating estimates when their earnings are released, and a VGM Style Score of B or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Energy

VanEck Vectors Oil Services ETF (OIH – Free Report) : This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, which include oil equipment, oil services or oil drilling. Holding 26 stocks in its basket, the product is largely concentrated on the top two firms, Schlumberger (SLB – Free Report) and Halliburton (HAL – Free Report) , that collectively make up for 32.8% share in the basket. Other firms hold no more than 6.1% of total assets. With AUM of $1.2 billion and average daily volume of about 6.1 million shares, this is by far the largest and the most popular ETF in the energy space. The ETF charges 35 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: 5 Best-Performing Energy ETFs & Stocks of September).