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Should You Buy IBM ETFs Ahead of Q4 Results?

Sweta Killa

International Business Machines IBM is scheduled to report fourth-quarter 2018 results on Jan 22 after market close. Being the world’s largest computer-services provider, it is worth taking a look at its fundamentals ahead of results (read: 4 Sector ETF & Stock Picks to Bet on Ahead of Q4 Earnings).

IBM has been on a downtrend over the past three months losing 4.7% but has outperformed the industry’s average decline of 21.4%. The negative trend might reverse if IBM beats the earnings estimate.

Inside Our Methodology

IBM has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.80%, indicating lower chances of it beating estimates this quarter. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP may lead to an earnings beat. A Zacks Rank #4 or 5 (Sell rated) is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The stock saw negative earnings estimate revision of four cents for the fourth quarter over the past seven days. Analysts declining estimates right before earnings — with the most up-to-date information possible — is a bad indicator for the stock, suggesting some pain might be in store. Additionally, the Zacks Consensus Estimate reflects modest earnings decline of 7.14% from the year-ago quarter. IBM also projects year-over-year revenue decline of 3.52%.

However, the earnings track is respectable, with an average earnings surprise of 1.13% for the last four quarters. Further, the stock boasts a top Value Score of A and belongs to a top-ranked Zacks industry (top 30%) (read: Forget Growth, Bet on Value ETFs in 2019).

According to the analysts compiled by Zacks, IBM has an average target price of $159.60 with 39% of the analysts having a Strong Buy or a Buy rating and 54% having a Hold rating ahead of earnings. This represents nearly 29% upside form the current price.

What to Watch?

Though revenue is expected to decline for the second consecutive quarter, IBM expects strategic areas like cloud computing, security software, data analytics and artificial intelligence to account for half of total revenues.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus going into its earnings announcement. These funds could be potential movers if IBM surprises the market:

First Trust NASDAQ Technology Dividend Index Fund TDIV

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $864.8 million in its asset base while trading in volume of around 94,000 shares per day. It charges 50 bps in annual fees and holds about 97 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.2% of the assets. In terms of industrial exposure, the fund allocates about 25.4% of the portfolio in software & IT services, followed by semiconductor and semiconductor equipment (23%), and telecom services (21%) (read: 5 Market-Beating Dividend ETFs of 2018).

Invesco Dow Jones Industrial Average Dividend ETF DJD

This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 29 stocks in it basket, with IBM occupying the sixth position with 5.1% allocation. Consumer staples, information technology, health care, industrials and energy are the top five sectors. DJD has been able to manage assets worth $121.2 million, while trades in volume of 43,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: Dogs of the Dow Win in 2018: Will ETFs See Success in 2019?).

WBI Power Factor High Dividend ETF WBIY

This ETF offers exposure to quality stocks that have the highest dividend yield with a deep value bias and multi-factor fundamental analysis. It follows the Solactive Power Factor High Dividend Index, holding 52 stocks in the basket with IBM (5% share) taking the second spot. Consumer discretionary is the top sector with one-fourth of the portfolio while financials, communications and consumer staples round off the next three spots. The product has amassed $89.3 million in its asset base and trades in lower volume of 54,000 shares a day on average. It charges 70 bps in annual fees.

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