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4 ETFs & Stocks to Buy This Summer From Top Sectors

·8 min read

With summer kicking off, the U.S. stock market is nearing all-time highs and expectations are of its hitting new peaks. This is especially true as the economy is strongly recovering from the pandemic lows with millions of Americans fully vaccinated and pandemic restrictions being rolled back.

Additionally, huge infrastructure spending as well as massive fiscal and monetary stimulus is instilling strong confidence in the economy. The combination of factors is leading to pent-up demand for all types of products and services in the economy. Latest data added to the strength as U.S. manufacturing activity hit a record-high in May for the second straight month supported by stronger expansion in output and new orders. Meanwhile, the core personal consumption expenditures index increased by 3.1% in April from a year ago, sharply higher than the March reading of 1.9% and marking the highest reading since 1992.

Further, the travel industry, which was the worst hit during pandemic, is expected to recover this summer as more Americans return to the road. According to TripAdvisor TRIP, about 67% of Americans expect to travel this summer, with 74% staying in the United States. The outdoor activities that American families are eyeing this summer include beach day, socially distanced barbecue day, camping trip, and pool day. The rebound in travel should support stock rally.

However, concerns over rising inflation and resurgence in coronavirus cases in Asia, most notably in India might result in volatility (read: 4 Sector ETFs That Gained Double Digits in a Volatile May).

Against such a backdrop, investors should look at the ETFs and stocks from the top-performing sectors.

How to Find the Top-Performing Sectors

While identifying the top-performing sector is a daunting task, the Zacks Industry Rank makes this process simpler. The Zacks Industry Rank is determined by calculating the average Zacks Rank for each stock in the industry and then assigning a rank to it. First, we selected the best industries that have a top Zacks Rank.

A top Zacks Industry Rank means that more stocks within that group are seeing upward earnings estimate revisions. Since an industry is a group of stocks in a similar business, this is the perfect way to size it up (read: all the Top Ranked ETFs).

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 265 or X-level industries. We rank all 265 X-level industries on the basis of earnings outlook of the constituent companies into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

The top 132 Zacks Ranked industries feature in the top 50% of all X-level industries whereas the bottom 133 Zacks Ranked industries are in the bottom 50%.

Construction

Construction and building products continued to hog investors’ interest heading into the summer selling season. It belongs to the most-attractive sector with Building Products - Wood (top 2%) leading the way followed by Building Products - Mobile Homes and RV Builders (top 3%), Building Products - Home Builders (top 8%), and Building Products - Air Conditioner and Heating (top 12%).

iShares U.S. Home Construction ETF ITB: This fund provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It holds a basket of 46 stocks with double-digit allocation going to the top two firms. The product has amassed $2.7 billion in its asset base and trades in a heavy volume of around 2.4 million shares a day on average. It charges 42 bps in annual fees and has a Zacks ETF Rank # 1 (Strong Buy) with a High risk outlook (read: What Awaits Housing ETFs as US Existing Home Sales Disappoint?).

Weyerhaeuser Company WY: This Washington-based company is one of the leading U.S. forest product companies with operations primarily concentrated in Southern California, Nevada, Washington, Texas, Maryland and Virginia. The stock saw positive earnings estimate revisions of 68 cents for this year in the past 30 days and has an expected growth rate 179.1%. It has a Zacks Rank #1 and Growth Score of B.

Retail

The retail sector is poised to benefit from a huge infrastructure spending package, which is boosting consumer spending and confidence. Most of the industries in the sector currently possess a top rank with Retail - Catalog Shopping, Retail - Home Furnishings and Automotive - Retail and Whole Sales falls under the industry Rank of top 3% each.

SPDR S&P Retail ETF XRT: With AUM of $938.9 million, this product tracks the S&P Retail Select Industry Index, holding 101 securities in its basket with each accounting for no more than 1.8% of assets. Internet & direct marketing retail, apparel retail, automotive retail and specialty stores are the top four sectors with a double-digit allocation each. The fund charges 35 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Walmart Inc. WMT: This Arkansas-based company is engaged in the operation of retail, wholesale, and other units worldwide. The stock saw positive earnings estimate revisions of 45 cents for fiscal year (ending January 2022) in the past 30 days and has an expected earnings growth of 7.1%. Walmart has a Zacks Rank #2 and Growth Score of A (read: Retail ETFs in Focus Post Q1 Earnings).

Industrial Products

The industrial sector has been on a tear with a recovering manufacturing industry. This is especially true as manufacturing activity hit a record-high in May for the second consecutive month buoyed by stronger expansions in output and new orders. As such, Wire and Cable Products and Metal Products- Distribution fall within the most attractive industries with a rank in the top 1% and top 3%, respectively.

Industrial Select Sector SPDR XLI: This is the most-popular ETF in the industrial space with AUM of $21.1 billion and an average daily volume of around 11.2 million shares. The fund follows the Industrial Select Sector Index, holding 74 stocks in its basket. It is well spread out across sectors with machinery, aerospace & defense, industrial conglomerates, and road & rail that make up for a double-digit share each. This ETF charges 12 bps in fees per year and has a Zacks ETF Rank #1 (read: Top-Ranked Industrials ETFs Rise More Than 20% YTD).

Caterpillar Inc. CAT: This Illinois-based company is the largest global manufacturer of construction and mining equipment. It witnessed positive earnings estimate revision of 10 cents for this year in a month and has projected earnings growth rate of 47.3%. The stock has a Zacks Rank #2 and Growth Score of A.

Transport

Travel has rebounded strongly as more Americans are getting vaccinated, business and economy have reopened, and consumer confidence is growing. A strong summer driving season is expected to add fuel to transportation. Air Freight and Cargo (top 3%) is leading the sector higher followed by Truck (top 10%) and Services (top 18%).

iShares Transportation Average ETF IYT: The fund tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 20 securities. Railroads takes the top spot with 35.6% of the portfolio while air freight & logistics, trucking and airlines round off to the next three spots with a double-digit exposure each. The fund has accumulated $2.1 billion in AUM while seeing a solid trading volume of around 203,000 shares a day. It charges 42 bps in annual fees and has a Zacks ETF Rank #2 with a High risk outlook.

United Parcel Service Inc. UPS: This Georgia-based company is the world's largest express carrier and package delivery company. It saw positive earnings estimate revision of 14 cents for this year in the past month and has an estimated growth rate of 29.8%. The stock has a Zacks Rank #2 and Growth Score of A.

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Caterpillar Inc. (CAT) : Free Stock Analysis Report

Walmart Inc. (WMT) : Free Stock Analysis Report

United Parcel Service, Inc. (UPS) : Free Stock Analysis Report

Weyerhaeuser Company (WY) : Free Stock Analysis Report

Industrial Select Sector SPDR ETF (XLI): ETF Research Reports

TripAdvisor, Inc. (TRIP) : Free Stock Analysis Report

SPDR S&P Retail ETF (XRT): ETF Research Reports

iShares Transportation Average ETF (IYT): ETF Research Reports

iShares U.S. Home Construction ETF (ITB): ETF Research Reports

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