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5 ETFs to Bet on Favorite Sectors of Q4 Earnings

5 ETFs to Bet on Favorite Sectors of Q4 Earnings

Fourth-quarter 2022 earnings are set to kick off next week, with the banking sector slated to report numbers. Total S&P 500 earnings are expected to be down 7.3% from the same period last year on 4% higher revenues. The earnings decline is down from 1.7% growth at the start of the fourth quarter.

Participants in the markets fear that we may be on the cusp of an earnings cliff. The combined effects of softening demand, resulting from an extraordinary Fed tightening and persistent cost pressures, may prompt management teams across many industries to issue a downbeat guidance (read: 5 Winning ETF Ideas for Your Portfolio in 2023).

Of the 16 Zacks sectors, eight are expected to post positive earnings growth in the fourth quarter, with the strongest gains in aerospace (up 193.9%). This will be followed by the energy (up 54.8%), autos (44.8%), transportation (37.7%) and industrials (11.5%) sectors.

Given this, we have highlighted one ETF from these five sectors that could make great plays as the earnings season unfolds. These ETFs have a favorable Zacks ETF Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Aerospace

The ongoing Russia-Ukraine issues will continue to drive defense spending higher. Additionally, the aerospace and defense sector has shown its resiliency to the recent market volatility, which is expected to prevail in the coming days. iShares U.S. Aerospace & Defense ETF ( Free Report) seems a good pick. It provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. iShares U.S. Aerospace & Defense ETF holds 35 stocks in its basket with AUM of $4.8 billion and an expense ratio of 0.39% (read: Aerospace ETF Hits New 52-Week High).

iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 489,000 shares. It has a Zacks ETF Rank #3 with a Medium risk outlook.

Energy

The energy sector has been benefiting from higher oil prices on tight supply conditions amid a rising interest rates environment and recession fears. Energy Select Sector SPDR ( Free Report) is the largest and the most popular ETF in the energy space, with AUM of $40.7 billion and an average daily volume of 22 million shares. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 23 securities in its basket, with a heavy concentration on the top two firms.

Energy Select Sector SPDR charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a High-risk outlook.

Auto

Although vehicle sales saw the worst year in more than a decade, automakers are expected to post strong earnings growth. First Trust S-Network Future Vehicles & Technology ETF ( Free Report) offers pure-play global exposure to 101 auto stocks by tracking the S-Network Electric & Future Vehicle Ecosystem Index. It has a moderate concentration across components as each of these makes up for no more than a 5.5% share.

First Trust S-Network Future Vehicles & Technology ETF has $40.2 million in AUM and trades in a small average daily trading volume of about 5,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook.

Transportation

The transport sector has bounced back strongly, with more Americans returning to traveling. As such, the sector is expected to post strong results, and iShares U.S. Transportation ETF ( Free Report) seems a good pick. It tracks the S&P Transportation Select Industry FMC Capped Index, giving investors exposure to a small basket of 49 securities. From a sector perspective, air freight & logistics and railroads take the largest share at nearly 31% each, while trucking and airlines round off the next two spots with double-digit exposure each.

iShares U.S. Transportation ETF has accumulated $724.1 million in its asset base and sees a solid trading volume of around 183,000 shares a day. It charges 39 bps in annual fees and has a Zacks Rank #3 with a Medium risk outlook.

Industrials

The industrials sector is set to benefit as business conditions remain good, and demand seems to be solid. Growing employment in the manufacturing sector calls for strength. iShares U.S. Industrials ETF ( Free Report) , with a Zacks ETF Rank #2 and a Medium risk outlook, looks like an exciting pick (read: 5 Top-Ranked Small-Cap ETFs to Buy for the January Effect).

iShares U.S. Industrials ETF offers exposure to 179 U.S. companies that produce goods used in construction and manufacturing by tracking Russell 1000 Industrials 40 Act 15/22.5 Daily Capped Index. It is tilted toward capital goods’ companies at 45.8%, while software services and transportation round off the next two spots with double-digit exposure each. iShares U.S. Industrials ETF has an AUM of $1.3 billion and an average daily volume of around 183,000 shares. It charges 39 bps in annual fees.

Written by Susan Bellini