The Q2 earnings season is underway with major banks set to report this week. Earnings for the S&P 500 index are expected to grow 5.7% from the same period last year on 4.6% higher revenues, as per the latest Earnings Trends. However, earnings and revenue growth estimates are lower than Q1 growth of 13.3% and 7%, respectively.

While earnings estimates for Q2 have declined from 7.9% at the start of the period, the magnitude of negative revision is lower relative to the recent quarters. Of the 16 Zacks sectors, 10 are likely to be contributors to earnings growth, with energy leading the way. The energy sector has the strongest growth of 247.7% for Q2, primarily reflecting easier comparisons. This was followed by 48.8% earnings growth for aerospace and double-digit growth each for construction, industrial products, and technology.  

Given this, we have highlighted one ETF and one stock from some of these sectors that could make great plays as the Q2 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.

Energy

SPDR S&P Oil & Gas Exploration & Production ETF (XOP – Free Report) : This fund provides equal weight exposure to 64 firms by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. Each holding makes up for less than 2.6% of the total assets. XOP is one of the largest and popular funds in the energy space with AUM of over $2.3 billion and expense ratio of 0.35%. It trades in heavy volume of around 16.7 million shares a day on average and has a Zacks ETF Rank of 3 with a High risk outlook.

Boardwalk Pipeline Partners LP (BWP – Free Report) : This Zacks Rank #1 company is a master limited partnership that provides transportation, storage, gathering and processing services for natural gas and natural gas liquids. It has seen positive earnings estimate revision of a penny for the yet-to-be reported quarter over the past 90 days and has an expected growth rate of 10.90%. It has an Earnings ESP of +3.45% and delivered positive earnings surprises in the last four quarters, with an average beat of 17.31%. Boardwalk Pipeline Partners is scheduled to report its earnings results on August 7 and belongs to a strong Zacks Industry Rank in the top 43%.

Construction

iShares U.S. Home Construction ETF (ITB – Free Report) : This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 45 stocks with double-digit allocation going to the top two firms. Other firms hold not more than 8.8% of assets. The product has amassed $1.7 billion in its asset base and trades in heavy volume of around 2.7 million shares a day on average. It charges 44 bps in annual fees and has a Zacks ETF Rank of 1 with a High risk outlook.

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