The Zacks Analyst Blog Highlights: Alcoa, SPDR S&P Transportation ETF, iShares Dow Jones Transportation Average Fund, Fe

Chicago, IL – April 13, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks and ETFs recently featured in the blog include the Alcoa (AA-Free Report), SPDR S&P Transportation ETF (XTN-Free Report), iShares Dow Jones Transportation Average Fund (IYT-Free Report), FedEx (FDX-Free Report) and First Trust NASDAQ Global Auto ETF (CARZ-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday’s Analyst Blog:  

Winning ETF Picks for Q1 Earnings Season

With mixed results from the aluminum giant Alcoa (AA-Free Report) on Wednesday, the first quarter of 2015 earnings season kicked off. Strong U.S. dollar, lower oil prices, and a severe winter are likely to have played foul on the company’s revenue and earnings once again, taking the sheen away from the quarter’s outlook.

This is especially true as Q1 earnings estimates have fallen sharply over the past three months and the magnitude of negative earnings revisions has been the highest in many quarters, as per the Zacks Industry Trend. In fact, the earnings growth rate has turned to a negative territory of 3.30% from a positive 4% seen at the start of the year. This is also much lower than growth of 6.4% reported in Q4. Revenue is also expected to decline more by 4.5% versus the 0.1% decline in Q4 (read: Earnings Vs. Revenue Weighted ETFs for Q1).

Not only is the growth rate low, total aggregate earnings for the S&P 500 index are also expected to be the lowest since the fourth quarter of 2012. The earnings weakness seems broad based with half of the 16 Zacks sectors likely to post an earnings decline and energy being the biggest drag. Total earnings for this sector are expected to be down 62.7% year over year on 36.2% lower revenues.

Further, if we look at the Wall Street expectations, Q1 S&P 500 earnings are expected to decline by 2.8% from the year-ago quarter, representing the worst quarter since the third quarter of 2009.

Any Bright Spots?

The earnings picture, save the energy sector, looks pretty good at Zacks with earnings and revenues for the S&P 500 companies expected to grow 4.7% and 0.7%, respectively. Two sectors – transportation and auto – could emerge as big winners, turning out to be the major contributors to earnings. Other sectors – medical/healthcare and construction – will likely post double-digit earnings growth, followed by financials and business services.

Transportation

The transport sector is expected to report a whopping earnings growth of 42.1% year over year on 3.4% revenues for the first quarter. While the strong dollar has eaten away the profits of big transporters and held the sector back this year, a combination of other factors is raising demand for movement of goods across many economic sectors, thereby acting as a major catalyst for the incredible earnings growth (read: Is Cheap Oil Driving Transport Earnings and ETFs?).

Some of these include stepped-up economic activities, improving manufacturing and industrial activities, better job conditions, increasing investor sentiment, and of course, cheap fuel, which is a huge boon to the transportation sector. One way to play this trend is with SPDR S&P Transportation ETF (XTN-Free Report). This fund uses the equal weight methodology to each security by tracking the S&P Transportation Select Industry Index. Holding 50 stocks in its basket with AUM of $594.9 million, each security accounts for less than 2.8% of total assets.

The ETF is skewed toward small caps at 49% while mid and large caps account for 30% and 21% share, respectively. About one-third of the portfolio is dominated by trucking while airlines take another one-fourth share. Airfreight & logistics, and railroads also make up for a double-digit allocation. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of more than 95,000 shares a day.

XTN is down about 5.3% in the year-to-date time frame, suggesting a good entry point at the current levels given that it has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook. Apart from this Buy-ranked product, investors also have iShares Dow Jones Transportation Average Fund (IYT-Free Report), which tracks the Dow Jones Transportation Average Index and holds 20 stocks in its basket.

This fund is highly concentrated on the top firm - FedEx (FDX-Free Report) – at 12.3% while other firms hold less than 7.7% of assets. From a sector perspective, it is tilted toward railroad at 47.6% while the airfreight and logistics sector makes up for nearly 28% share. The product has accumulated nearly $1.4 billion in AUM while sees a good trading volume of 513,000 shares a day on average. It charges 43 bps in fees and expense. IYT has lost 5.1% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: Will the FedEx-TNT Deal Fuel Transport ETFs?).

Automotive

The U.S. automotive sector has been growing rapidly over the past one year. A lower interest on auto loans, lower gasoline prices, a plethora of new models, need for replacement of aging vehicles and rising consumer spending are driving the industry’s sales higher. A strengthening job market, rising wages and increasing wealth are also adding to the strength. These attributes are expected to lead to earnings growth of 32.9% on almost flat revenues with the year-ago quarter.

Investors could tap this solid earnings growth potential with a pure play – First Trust NASDAQ Global Auto ETF (CARZ-Free Report) – that provides global exposure to the 36 auto stocks by tracking the NASDAQ OMX Global Auto Index. This large cap centric fund is highly concentrated on the top 10 holdings with about 60% of assets, suggesting that company-specific risk is high and that the top 10 firms dominate the returns of the fund.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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