Tag Archives: macro-view

Best And Worst Q3’15: Utilities ETFs, Mutual Funds And Key Holdings

Summary Utilities sector ranks eighth in Q3’15. Based on an aggregation of ratings of nine ETFs and 26 mutual funds. XLU is the top-rated Utilities ETF and EVUYX is the top-rated Utilities mutual fund. The Utilities sector ranks eighth out of the 10 sectors as detailed in our Q3’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Dangerous rating, which is based on an aggregation of ratings of nine ETFs and 26 mutual funds in the Utilities sector. See a recap of our Q2’15 Sector Ratings here. Figure 1 ranks from best to worst all nine Utilities ETFs and Figure 2 shows the five best and worst-rated Utilities mutual funds. Not all Utilities sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 81). This variation creates drastically different investment implications and, therefore, ratings. Investors should not buy any Utilities ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fund fees. Active management has a long history of not paying off. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) is the top-rated Utilities ETF and the Wells Fargo Advantage Utility & Telecommunications Fund (MUTF: EVUYX ) is the top-rated Utilities mutual fund. Both earn a Neutral rating. The PowerShares S&P SmallCap Utilities Portfolio ETF (NASDAQ: PSCU ) is the worst-rated Utilities ETF and the Rydex Utilities Fund (MUTF: RYUTX ) is the worst-rated Utilities mutual fund. PSCU earns a Dangerous rating and RYUTX earns a Very Dangerous rating. 80 stocks of the 3000+ we cover are classified as Utilities stocks, but due to style drift, Utilities ETFs and mutual funds hold 81 stocks. SCANA Corporation (NYSE: SCG ) is one of our favorite stocks held by Utilities ETF and mutual funds and earns our Attractive rating. Since 2010, the company has grown after-tax profit ( NOPAT ) by 6% compounded annually. This profit growth is supported by SCANA’s 16% NOPAT margin, which is much higher than the 12% achieved in 2010. Despite SCANA’s steady business improvements, the stock price reflects a different picture. At its current price of ~$56/share, SCANA has a price to economic book value ( PEBV ) ratio of 0.9. This ratio implies that the market expects the company’s profits to permanently decline by 10%. If SCANA can grow NOPAT by only 4% compounded annually over the next five years , the stock is worth $72/share today – a 28% upside. Northwest Natural Gas Company (NYSE: NWN ) is one of our least favorite stocks held by Utilities ETF and mutual funds and earns our Dangerous rating. Over the past five years, Northwest’s NOPAT has declined by 3% compounded annually. Northwest currently earns a bottom quintile return on invested capital ( ROIC ) of 3%. Despite the declining profits, investors have stuck with NWN, most likely for its 4% dividend yield. However, dividend aside, Northwest’s stock price is overvalued. To justify its current price of $44/share, Northwest must grow NOPAT by 4% compounded annually for 12 years . 4% NOPAT growth might not seem like much, but for a Utility company that has seen profits decline for years, this growth expectation is rather optimistic. Figures 3 and 4 show the rating landscape of all Utilities ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer, Kyle Guske II, and Max Lee receive no compensation to write about any specific stock, sector or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Social Media ETF: Will You Sign In Or Out Post Earnings?

The social media space, once a rising star, is seeing tough times for the last three months as evident by 6.3% loss incurred by the pure-play ETF Global X Social Media Index ETF (NASDAQ: SOCL ). The fund started the year on a solid note as the tech space soared but offhand Q1 earnings by some its components caught the fund off guard. This makes it more important for investors to keep a close watch on the Q2 earnings performance by the constituent companies and see what’s in store for SOCL in the coming days. Below we highlighted some key companies’ earnings this season and its impact on the fund. Results in Detail On July 30, professional networking giant LinkedIn Corporation (NYSE: LNKD ) beat the Zacks Consensus Estimate beat on earnings and revenues. However, investors dumped LNKD shares post results on a weak third-quarter revenue outlook. LinkedIn expects revenues within $745-$750 million while the Zacks Consensus Estimate was pegged at $750 million before earnings. But the company raised its full-year revenue expectation to $2.94 billion from $2.90 billion. Non-GAAP earnings per share for 2015 are projected at $2.19 per share compared with the previous guidance of $1.90 per share. Notably, LinkedIn is SOCL’s third-largest holding with 8.18% focus and has considerable power to make or break this ETF. On July 29, the social media giant Facebook (NASDAQ: FB ) reported a mixed-bag with an earnings miss and a revenue beat. Though revenues grew 39% in the quarter, the rate of growth was slower, marking the fifth straight quarter of deceleration. Higher expenses and growing concerns over slower revenue growth weighed on the Facebook stock and investors hurried to sell FB shares post earnings. Facebook has as much as 12.82% weight and the top spot in the fund SOCL. In July, Yahoo’s (NASDAQ: YHOO ) second-quarter adjusted numbers missed the Zacks Consensus Estimate, but its net revenue was higher than the Zacks Consensus Estimate. However, the company’s turnaround trends are solid. YHOO has a position in SOCL’s top 10 holdings with about 4.19% weight. In mid July, Google Inc. (NASDAQ: GOOGL ) (NASDAQ: GOOG ), the world’s biggest Internet search engine, stirred up investors with upbeat Q2 results. The stock soared 16.3% the day after it reported earnings. Google has 6.5% weight in SOCL, occupying the fifth position. On August 7, 2015, Groupon’s (NASDAQ: GRPN ) second-quarter top and bottom line missed our estimates. Also, the company projects revenues for the third in the range of $700-$750 million which fell short of the analysts’ expectation. As a result, the shares slumped 5.34% at the close of August 7. The company has 3.17% weight in the social media ETF. Twitter (NYSE: TWTR ) also reported last month. A deceleration in monthly user growth and a slightly soft Q3 guidance prompted investors to stay away from the Twitter stock although the company beat on the top and the bottom lines. The stock crashed post earnings. Early this month, Twitter hit a fresh low. However, SOCL has a meager percentage in with about 2.78%. ETF Perspective In such a backdrop, we would suggest investors to take a cautious approach on investing in the social media space as strength and weakness weigh almost the same. The recent stretch of huge sell-off in some components may be the result of overvaluation. Adding TWTR, FB or GRPN to one’s portfolio might not be a safe idea right now, but having a basket approach via SOCL – a pure play social media ETF – might be a smart move as far as risk minimization is concerned. SOCL has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘High’ risk outlook and can protect the money of investors (interested in playing the social media space at the current level). This would also mitigate risks that the laggards bear. SOCL focuses on global companies engaged in some aspect of the social media industry. The fund tracks Solactive Social Media Index and invests $82.8 million of assets in 32 holdings. SOCL has company-specific concentration risk, putting more than 60% of investments in its top 10 holdings. The product charges 65 bps in annual fees. SOCL is up about 4% so far this year. Original Post