After the closing bell on Tuesday, International Business Machines (IBM dampened investors’ mood with first-quarter 2017 results. While the world’s largest computer-services provider continued its streak of earnings beat for the tenth consecutive quarter, it missed on revenues for the first time in five quarters. This suggests that the company’s turnaround might take longer than expected (see: all the Technology ETFs here).
Earnings per share came in at $2.38, well above our estimated $2.34 and the year-ago earnings of $2.35. Revenues slid 3% year over year to $18.15 billion and fell shy of the Zacks Consensus Estimate of $18.50 billion. This marks the twentieth consecutive quarter of revenue decline for the company, the longest streak in its history.
The company is on track with its transition from low-margin business lines, such as cash registers, low-end servers, and semiconductors, to strategic growth areas including cloud computing, security software, data analytics and artificial intelligence. While the strategic business is paying off, it failed to make up for the slowdown in hardware and technology services in the first quarter. Notably, revenues from strategic business climbed 12% year over year and accounted for 42% of the total revenue.
For 2017, the company reaffirmed the earnings per share guidance of at least $13.80.
Following the revenue miss, shares of IBM tumbled as much as 5.5% in aftermarket hours. The dip could be an attractive entry point for investors given that IBM has a favorable Zacks Rank #3 (Hold) and an impressive VGM Style Score of B. However, it belongs to an industry that has a Zacks Rank in the bottom 19%.
ETFs to Watch
Given this, ETFs with the highest allocation to this tech giant will be in focus. Investors should closely monitor the movement in these funds and tap the opportunity whenever it arises or avoid if the stock drags them down in the coming days (read: 5 Hottest Tech ETFs of 2017):
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 $689.2 million in its asset base while trading in volume of around 98,000 shares per day. It charges 50 bps in annual fees and holds about 89 securities in its basket. Of these firms, IBM takes the fifth spot, making up roughly 7.6% of the assets. In terms of industrial exposure, the fund allocates more than one-fourth portion in semiconductor and semiconductor equipment, followed by diversified telecom services (15.7%), software (15.1%), technology hardware, storage & peripherals (13.1%) and communication equipment (10.3%).
SPDR Dow Jones Industrial Average ETF DIA
This fund follows the Dow Jones Industrial Average, providing exposure to 31 blue-chip U.S. stocks. IBM occupies the fourth position in the basket with 5.7% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. DIA is one of the largest and most popular ETFs in the space with AUM of $16.2 billion and average daily volume of more than 3.7 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
PowerShares S&P 500 Quality Portfolio SPHQ
This fund tracks the S&P 500 Quality Index, a benchmark of the S&P 500 stocks that have the highest quality score based on three fundamental measures: return on equity, accruals ratio and financial leverage ratio. This approach results in a basket of 99 stocks with IBM taking the seventh spot at 4.3% share. From a sector look, the fund is widely spread across information technology, industrials, consumer staples and consumer discretionary with a double-digit exposure each. It has managed $1.2 billion in AUM and trades in good volume of around 264,000 shares per day on an average. Its expense ratio is 0.29%. SPHQ has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Face Off: Small Versus Large Cap ETFs).
First Trust Morningstar Dividend Leaders Index Fund FDL
With AUM of $1.8 billion, the fund offers exposure to stocks that have shown maximum dividend consistency and sustainability by tracking the Morningstar Dividend Leaders Index. In total, it holds 97 stocks with IBM taking the ninth spot in the basket with 4.1% allocation. Telecom services, consumer staples, and information technology are the top three sectors accounting for at least 17% of the portfolio each while utilities and healthcare round off the next spots with a double-digit exposure each. FDL charges 45 bps in annual fees from investors and trades in solid volume of more than 346,000 shares a day. It has a Zacks ETF Rank of 3 with a Medium risk outlook.
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International Business Machines Corporation (IBM): Free Stock Analysis Report
SPDR-DJ IND AVG (DIA): ETF Research Reports
FT-NDQ TECH DIF (TDIV): ETF Research Reports
FT-MRN DVD LE I (FDL): ETF Research Reports
PWRSH-SP5 HQ (SPHQ): ETF Research Reports
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