ETFs to Watch on IBM's Likely Revenue Rebound in Q4
International Business Machines IBM is scheduled to report fourth-quarter 2017 results on Jan 18 after market close. Being the world’s largest computer-services provider, it is worth taking a look at its fundamentals ahead of results.
IBM has gained 2.7% over the past three months but lagged the industry’s average growth of 3.6%. The upside is expected to continue as IBM is poised to beat our earnings estimate as per the Zacks methodology and has attractive fundamentals (read: 6 Dow Stocks That Should Drive These ETFs Higher).
Inside Our Methodology
IBM has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.24%, indicating reasonable chances of its 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 earnings track record is respectable, with an average earnings surprise of 3.39% for the last four quarters. The Q4 Zacks Consensus Estimate reflects modest earnings growth of 3.19% from the year-ago quarter. IBM also projects year-over-year revenue growth of 0.87%, signaling an end to the declining revenue streak. Though IBM has ugly Growth and Momentum Style Score of D and F, respectively, it boasts a top Value Style Score of A and a solid Industry Rank in the top 34%.
According to the analysts compiled by Zacks, IBM has an average target price of $166.71 with 26% of the analysts having a Strong Buy or a Buy rating and 58% having a Hold rating ahead of earnings.
What to Watch?
Investors will be closely watching whether the company’s turnaround story, with the first quarterly revenue growth in many years, will materialize in the fourth quarter. Strategic areas like cloud computing, security software, data analytics and artificial intelligence as well as the new wave of blockchain technology are acting as a significant tailwind to the company’s top line (read: How to Invest in the Hottest Technologies With ETFs).
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 $865.1 million in its asset base while trading in volume of around 62,000 shares per day. It charges 50 bps in annual fees and holds about 94 securities in its basket. Of these firms, IBM takes the third spot, making up roughly 8.1% of the assets. In terms of industrial exposure, the fund allocates about 29.2% of the portfolio in semiconductor and semiconductor equipment, followed by software (14.7%), technology hardware, storage & peripherals (13%), and diversified telecom services (11.6%).
Guggenheim Dow Jones Industrial Average Dividend ETF DJD
This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by tracking the Dow Jones Industrial Average Yield Weighted. It holds 30 stocks in it basket with IBM occupying the second position with 5.3% allocation. Information technology, industrials, healthcare, and consumer staples are the top four sectors. DJD has been able to manage assets worth $14.1 million while trades in volume of 6,000 shares a day on average. It charges 30 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: 5 ETFs to Bet on 2018 Dogs of the Dow).
SPDR Dow Jones Industrial Average ETF DIA
This fund follows the Dow Jones Industrial Average, providing exposure to the 30 blue-chip U.S. stocks. IBM occupies the ninth position in the basket with 4.3% 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 ETF in the space with AUM of $23.9 billion and average daily volume of around 2.8 million shares. It charges 17 bps in annual fees from investors and has a Zacks ETF Rank #2 (Buy) (read: After a Solid Start, What Awaits Dow ETF in Q4 Earnings?).
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