Why You Should Buy Beaten-Down Chip ETFs Ahead Of Q3 Earnings

Semiconductors were under pressure in the third quarter given the waning demand for memory chips and escalation in trade tensions between the United States and China. As a result, iShares PHLX Semiconductor ETF (SOXX – Free Report), VanEck Vectors Semiconductor ETF (SMH – Free Report) and PowerShares Dynamic Semiconductors Fund (PSI – Free Report) have lost 9.5%, 10.9%, and 13.8%, respectively, in the past three months.

The weakness might continue this earnings season, given a few expected positive earnings surprises and little or no positive estimate revisions.

Some well-known players in the space like Texas Instruments (TXN – Free Report), Qualcomm (QCOM – Free Report), Intel (INTC – Free Report), NVIDIA (NVDA – Free Report) and Applied Materials (AMAT – Free Report) are expected to report this week and in the coming weeks. Let’s delve into the earnings picture of these companies that have a higher allocation in the abovementioned ETFs and the power to move the funds up or down as Q3 earnings unfold. SOXX is largely concentrated on the five firms, with a combined share of 36.8%, followed by 33.1% for SMH and 26.6% for PSI.

According to 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.

Inside Our Earnings Prediction

Texas Instruments is set to report on Oct 23, after market close. It has a Zacks Rank #4 and an Earnings ESP of -0.28%. The earnings estimate for the yet-to-be-reported quarter has been steady in the past 30 days. The earnings surprise track over the past four quarters is good, with an average beat of 5.38%. The stock has a VGM Score of A.