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

Summary Information Technology sector ranks second in Q3’15. Based on an aggregation of ratings of 28 ETFs and 129 mutual funds. TDIV is our top-rated Information Technology ETF and ROGSX is our top-rated Information Technology mutual fund. The Information Technology sector ranks second out of the 10 sectors as detailed in our Q3’15 Sector Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 28 ETFs and 129 mutual funds in the Information Technology sector as of July 9, 2015. See a recap of our Q2’15 Sector Ratings here . Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Information Technology sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 23 to 397). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Information Technology sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. 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 First Trust NASDAQ Technology Dividend Index ETF (NASDAQ: TDIV ) is the top-rated Information Technology ETF and the Red Oak Technology Select Fund (MUTF: ROGSX ) is the top-rated Information Technology mutual fund. Both earn a Very Attractive rating. The ARK Web x.0 ETF (NYSEARCA: ARKW ) is the worst-rated Information Technology ETF and The Rydex Internet Fund (MUTF: RYINX ) is the worst-rated Information Technology mutual fund. ARKW earns a Dangerous rating and RYINX earns a Very Dangerous rating. 527 stocks of the 3000+ we cover are classified as Information Technology stocks. Cisco Systems, Inc. (NASDAQ: CSCO ), a previous Stock Pick of the Week, is one of our favorite stocks held by TDIV and earns our Very Attractive rating. Since 2005, Cisco has grown after-tax profit ( NOPAT ) by 6% compounded annually. Cisco earns a top-quintile return on invested capital ( ROIC ) of 16% and has steadily become a free cash flow machine, generating $9.5 billion on a trailing-twelve month (TTM) basis. Fears of Cisco’s demise in a new age of technology have long kept the stock undervalued. At its current price of ~$28/share, Cisco has a price to economic book value ( PEBV ) of 0.9. This ratio implies the market expects Cisco’s profits to permanently decline by 10%. However, if Cisco can grow NOPAT by 5% compounded annually over the next decade , the stock is worth $36/share – a 28% upside. Proofpoint Inc. (NASDAQ: PFPT ) is one of our least favorite stocks held by ARKW and earns our Dangerous rating. Proofpoint is similar to many of our recent Danger Zone picks in that it touts high revenue growth but negative profits. From 2012-2014, Proofpoint grew revenue by 23% compounded annually. On the other hand, NOPAT declined from -$19 million to -$47 million. On a TTM basis, which includes 1Q15 results, NOPAT has fallen to -$52 million. Proofpoint’s pre-tax (NOPBT) margins are -26% and the company currently earns a bottom-quintile ROIC of -53%. The stock price has benefited from the hype surrounding cyber security companies and is now significantly overvalued. To justify its current price of $63/share, Proofpoint must immediately achieve 6% NOPBT margins (similar to peer Fortinet (NASDAQ: FTNT )) and grow revenues by 30% compounded annually for the next 16 years . If you want to be in a stock that benefits from the growth in cyber security, we recommend this recent stock pick of the week. Figures 3 and 4 show the rating landscape of all Information Technology 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 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.

Oracle Q4 Disappoints: 3 Tech ETFs To Watch

Tech bellwether Oracle (NYSE: ORCL ) reported lackluster fourth-quarter fiscal 2015 results (ending in May) after the closing bell on Wednesday. The company missed the Zacks Consensus Estimate for earnings and revenues due to negative currency translations and sagging traditional software sales. Oracle Q4 Earnings in Focus Earnings per share came in at 74 cents, lagging the Zacks Consensus Estimate by 8 cents. Revenues declined 5% year over year at $10.7 billion and were well below our $10.95 billion estimate. While the company’s shift to the Web-based cloud computing business is paying off, the gains are unlikely to make up for the declines in the software business. Additionally, a strong dollar remain as a headwind to the company’s performance. Excluding the impact of unfavorable currency rates, revenues would have risen 3%. Cloud software platform sales climbed 29% from the year-ago quarter and accounted for 4% of total revenue. Oracle will continue to benefit from the new generation of cloud computing and Big Data and steal market share from Salesforce.com Inc. (NYSE: CRM ), the only major software company competing in the cloud segment. For the fiscal first quarter, the world’s largest database software maker expects revenues to grow in 5-8% range in constant currency and earnings per share between 56 cents and 90 cents. The midpoint of the earnings guidance is well above the Zacks Consensus Estimate of 58 cents. Based on earnings and revenue miss, Oracle shares tumbled as much as 7.1% in after-hours trading. The sluggish trading is expected to continue in the days ahead given that the stock has a Zacks Rank #4 (Sell) and a poor Zacks Industry Rank in the bottom 34% at the time of writing. ETFs in Focus Given this, ETFs with the highest allocation to this software giant will be in focus in the days ahead. Investors should closely monitor the movement in these funds and avoid these if the stock drags them down: iShares S&P North American Technology-Software Index Fund (NYSEARCA: IGV ) This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 57 securities with Oracle taking the third spot at 8.47% of total assets. It is quite popular with AUM of over $1.2 billion while volume is moderate as it exchanges nearly 99,000 shares a day. The product charges 47 bps in annual fees and has gained about 10.4% so far this year. IGV has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. First Trust NASDAQ Technology Dividend Index Fund (NASDAQ: TDIV ) This fund provides exposure to the dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $692.7 million in its asset base while trades in volume of around 171,000 shares per day. The ETF charges 50 bps in annual fees. In total, the fund holds about 110 securities in its basket. Of these firms, ORCL takes the sixth position, making up roughly 4.3% of the assets. In terms of industrial exposure, the fund allocates one-fifth portion in semiconductor and semiconductor equipment, followed by technology hardware, storage & peripherals (16.6%) and software (16.5%). The fund is relatively flat so far this year. iShares Dow Jones U.S. Technology ETF (NYSEARCA: IYW ) This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 139 stocks in its basket with AUM of $3.1 billion while charging 43 bps in fees and expenses. Volume is moderate as it exchanges nearly 531,000 shares in hand a day. Oracle takes the ninth spot in the basket with nearly 4% of assets. The product is heavily skewed toward the software and services segments, as these make up for just less than half of the portfolio. Tech hardware and equipment, and semiconductors and semiconductor equipment take the remaining portion in the basket. The fund has added nearly 4% in the year-to-date time frame and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Original Post