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U.S. companies are having their best earnings season in nearly two years. With 80% of the companies in the S&P 500 having already reported, the index is on track to record 5% growth in first-quarter earnings per share per FactSet. This is the biggest year-over-year increase since the second quarter of 2022 and higher than 3.2% growth that analysts had expected prior to the start of the season (read: Time to Tap Wall Street ETFs on Earnings Strength?).
According to the Earnings Trends report, the picture emerging from the first-quarter earnings season continues to be one of steady improvement and resilience, with the earnings growth pace modestly accelerating and estimates for the coming periods starting to increase. Total earnings for the 440 S&P 500 members that have reported first-quarter results are up 5.0% from the same period last year on 4.2% higher revenues, with 78.0% beating EPS estimates and 60.9% beating revenue estimates.
The earnings and revenue growth rates represent a modest acceleration from the other recent periods. While the EPS beat ratio is modestly above the 5-year average for this group of companies, the revenue beat is notably below the 5-year average and toward the lower end of the range. Looking at the first quarter as a whole, S&P 500 earnings are now expected to be up 6.2% from the same period last year on 4.3% higher revenues (read: 5 Stocks at the Forefront of S&P 500 ETF's Latest Rally).
The earnings strength seems broad based, with 10 of the 16 Zacks sectors likely to enjoy positive earnings growth. The technology sector remains a key growth driver with expected earnings growth of 27.3%, followed by consumer discretionary (24.8%), retail (24.7%), construction (12.6%), business services (12.9%) and finance (12.1%). Other sectors, such as utilities, aerospace, consumer staples and industrial products, are also seeing notable year-over-year growth.
Given the strong earnings momentum, many investors would want to bet on earnings-focused ETFs.
Why Earnings-Focused ETFs?
Earnings are the most important driver of a stock’s performance over a longer period. This is because earnings are the lifeblood of any business, determining its ability and strength along with its growth prospects. Earnings-producing companies generally catch investors’ eye due to their solid financial position and growth potential, thereby leading to higher stock prices.
Thus, earnings-weighted ETFs have the potential to move higher relative to any other product in the earnings growth period. As a result, tilting toward this key metric is a sensible choice at present. For investors seeking to do this, there is a small lineup of U.S.-focused ETFs that accomplishes this task.
Below, we have highlighted a few ETFs that could be great choices for investors seeking to make money, focusing on one of the most important aspects of stock investing.
WisdomTree U.S. LargeCap Index provides exposure to earnings-generating companies within the large-cap segment of the broad U.S. stock market by tracking the WisdomTree U.S. LargeCap Index. Holding 500 stocks in its basket, the fund is well spread out across each component, with each having less than 5.6% share. Additionally, WisdomTree U.S. LargeCap Index has exposure to a number of sectors, with information technology, financials, communication services and healthcare taking double-digit exposure each.
The ETF has amassed $854.9 million in its asset base and charges 8 bps in annual fees. Volume is light, trading around 50,000 shares a day. EPS has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: What Will Election Bring About for Wall Street ETFs in 2024?).
WisdomTree U.S. MidCap Fund tracks the WisdomTree U.S. MidCap Index, providing exposure to 546 earnings-generating mid-cap companies. The fund is widely spread out across each component as each holds less than 1% of assets. It also has diverse exposure across various sectors like financials, industrials, and consumer discretionary, which receive double-digit allocation each.
WisdomTree U.S. MidCap Fund charges 38 bps in fees per year while trading in average daily volume of nearly 24,000 shares. It has $796.5 million in AUM and a Zacks ETF Rank #3 with a Medium risk outlook.
WisdomTree U.S. SmallCap Fund targets earnings-generating small-cap companies by tracking the WisdomTree U.S. SmallCap Index. Holdings 902 stocks in its basket, it provides a nice balance across various securities as each firm holds less than 1% share in the basket. From a sector look, financials takes the largest share at 25.6% of assets while industrials, consumer discretionary and information technology round off the next spots with double-digit exposure each.
WisdomTree U.S. SmallCap Fund has amassed $626.6 million in its asset base and sees a moderate volume of around 29,000 shares per day. It charges 38 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.
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ETFs to Tap the Best Earnings Growth in Two Years
U.S. companies are having their best earnings season in nearly two years. With 80% of the companies in the S&P 500 having already reported, the index is on track to record 5% growth in first-quarter earnings per share per FactSet. This is the biggest year-over-year increase since the second quarter of 2022 and higher than 3.2% growth that analysts had expected prior to the start of the season (read: Time to Tap Wall Street ETFs on Earnings Strength?).
According to the Earnings Trends report, the picture emerging from the first-quarter earnings season continues to be one of steady improvement and resilience, with the earnings growth pace modestly accelerating and estimates for the coming periods starting to increase. Total earnings for the 440 S&P 500 members that have reported first-quarter results are up 5.0% from the same period last year on 4.2% higher revenues, with 78.0% beating EPS estimates and 60.9% beating revenue estimates.
The earnings and revenue growth rates represent a modest acceleration from the other recent periods. While the EPS beat ratio is modestly above the 5-year average for this group of companies, the revenue beat is notably below the 5-year average and toward the lower end of the range. Looking at the first quarter as a whole, S&P 500 earnings are now expected to be up 6.2% from the same period last year on 4.3% higher revenues (read: 5 Stocks at the Forefront of S&P 500 ETF's Latest Rally).
The earnings strength seems broad based, with 10 of the 16 Zacks sectors likely to enjoy positive earnings growth. The technology sector remains a key growth driver with expected earnings growth of 27.3%, followed by consumer discretionary (24.8%), retail (24.7%), construction (12.6%), business services (12.9%) and finance (12.1%). Other sectors, such as utilities, aerospace, consumer staples and industrial products, are also seeing notable year-over-year growth.
Given the strong earnings momentum, many investors would want to bet on earnings-focused ETFs.
Why Earnings-Focused ETFs?
Earnings are the most important driver of a stock’s performance over a longer period. This is because earnings are the lifeblood of any business, determining its ability and strength along with its growth prospects. Earnings-producing companies generally catch investors’ eye due to their solid financial position and growth potential, thereby leading to higher stock prices.
Thus, earnings-weighted ETFs have the potential to move higher relative to any other product in the earnings growth period. As a result, tilting toward this key metric is a sensible choice at present. For investors seeking to do this, there is a small lineup of U.S.-focused ETFs that accomplishes this task.
Below, we have highlighted a few ETFs that could be great choices for investors seeking to make money, focusing on one of the most important aspects of stock investing.
WisdomTree U.S. LargeCap Index (EPS - Free Report)
WisdomTree U.S. LargeCap Index provides exposure to earnings-generating companies within the large-cap segment of the broad U.S. stock market by tracking the WisdomTree U.S. LargeCap Index. Holding 500 stocks in its basket, the fund is well spread out across each component, with each having less than 5.6% share. Additionally, WisdomTree U.S. LargeCap Index has exposure to a number of sectors, with information technology, financials, communication services and healthcare taking double-digit exposure each.
The ETF has amassed $854.9 million in its asset base and charges 8 bps in annual fees. Volume is light, trading around 50,000 shares a day. EPS has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: What Will Election Bring About for Wall Street ETFs in 2024?).
WisdomTree U.S. MidCap Fund (EZM - Free Report)
WisdomTree U.S. MidCap Fund tracks the WisdomTree U.S. MidCap Index, providing exposure to 546 earnings-generating mid-cap companies. The fund is widely spread out across each component as each holds less than 1% of assets. It also has diverse exposure across various sectors like financials, industrials, and consumer discretionary, which receive double-digit allocation each.
WisdomTree U.S. MidCap Fund charges 38 bps in fees per year while trading in average daily volume of nearly 24,000 shares. It has $796.5 million in AUM and a Zacks ETF Rank #3 with a Medium risk outlook.
WisdomTree U.S. SmallCap Fund (EES - Free Report)
WisdomTree U.S. SmallCap Fund targets earnings-generating small-cap companies by tracking the WisdomTree U.S. SmallCap Index. Holdings 902 stocks in its basket, it provides a nice balance across various securities as each firm holds less than 1% share in the basket. From a sector look, financials takes the largest share at 25.6% of assets while industrials, consumer discretionary and information technology round off the next spots with double-digit exposure each.
WisdomTree U.S. SmallCap Fund has amassed $626.6 million in its asset base and sees a moderate volume of around 29,000 shares per day. It charges 38 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.