The second-quarter (Q2) earnings reporting cycle is nearing an end. Though investors’ top focus remains on bottom line during an earnings reason, top line probably tells you more about the inherent strength of a company.
Why to Follow Revenue Growth This Reporting Cycle?
Per Earnings Trends issued on Aug 23, 2023, 96% of the S&P 500 companies have reported so far in Q2 with 8.5% decline in earnings and 0.8% growth in revenues. In Q2, about five out of the Zacks classified 16 sectors of the S&P 500 witnessed a decline in revenues so far while eight sectors reported earnings decline.
Investors should note that sales are harder to be influenced in an income statement than earnings. A company can land up on decent earnings numbers by adopting cost-cutting or some other measures that do not speak for its core strength. But it is harder for a company to mold its revenue figure.
Below, we highlight five sectors and their related ETFs that could be used to book some profits on revenue growth.
Sector ETFs in Focus
Autos – First Trust S-Network Future Vehicles & Technology ETF (CARZ)
The sector witnessed revenue growth of 22.6% in Q2 on 25.1% earnings growth. Decent sales of Motor Vehicle & Parts and the price inflation of new cars have been palpable. Both factors indicate that the business conditions remained favorable for the auto industry.
Aerospace – iShares U.S. Aerospace & Defense ETF (ITA)
The sector recorded 11.7% revenue growth in Q2 on 1.6% decline in earnings. Rising geopolitical tensions, rising M&A activities and cheaper valuation should support the sector.
Financials – Financial Select Sector SPDR ETF (XLF)
The sector witnessed revenue growth of 11.4% in Q2 on 4.3% increase in earnings. The likelihood of a steepening yield curve and cheaper valuation called for future strength in this ETF.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR Fund (XLY)
The sector’s revenues expanded by 8.3% in Q2 on 26.1% growth in earnings. America’s middle class is getting its spending power back after a year and a half of decades-high inflation, as revealed by a new household budget index from Primerica, a financial services company.
Industrials – Industrial Select Sector SPDR ETF (XLI)
Industrial activities have been in decent shape, if not great.The sector witnessed revenue growth of 5.8% in Q2 on 19.7% increase in earnings.
Financial Select Sector SPDR ETF (XLF): ETF Research Reports
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
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