In a year when Wall Street’s numbers seem to be as riveting as a blockbuster film, it’s clear that the market is in stellar condition. The S&P 500, Nasdaq Composite, and Dow Jones have all showcased impressive gains, trumpeting double-digit figures. The Russell 2000 is lagging a tad behind at 1% growth. While the tech realm has been the undisputed champion in the ongoing market surge, with AI innovations captivating investor interest, other sectors are now stepping back into the limelight, signaling a diversification in market appeal. Market experts foresee continued upswings in the stock market. Still, caution is whispered among some, fearing the specter of overvaluation after such a resounding rally.
Amid this backdrop of financial fiesta, some investors may find the hunt for promising sectors a perplexing task. To aid in this treasure hunt, we unveil three sectors with a promising Zacks Rank. These sectors, along with their respective ETFs, could be the golden tickets to capitalize on in the current scenario.
Key Sectors & Their ETFs in the Spotlight
When the lens zooms in, we shine a light on sectors that are poised for potential gains in the third quarter. Our guiding star in this quest is the Zacks Sector Rank. This ranking method calculates the average Zacks Rank for all stocks within a sector, assigning an ordinal rank based on this calculation.
For instance, a sector boasting an average Zacks Rank of 1.6 is a more attractive bet than a sector with an average Zacks Rank of 2.3. A superior Zacks Sector Rank is bestowed upon the sector with the better average Zacks Rank. Divvying all stocks among 16 sectors and determining their ranks crafts this refined approach.
The cream of sectors – those with the prime average Zacks Rank – occupies the top bracket (1 out of 16), placing them in the esteemed top 1% of Zacks Rank Sectors. Meanwhile, the top eight Zacks Ranked Sectors bask in the glory of being among the top 50%, while their lower-ranked counterparts wallow in the bottom 50%. The sectors unveiled below shine brightly with their optimistic Zacks ranks.
Curious to delve deeper?
Industrials – Gear Up for Momentum (Zacks Sector Rank #2)
The industrials sector is poised for a windfall as business fortunes improve and demand holds steady. A significant 70% of the industries nestled under this sector umbrella soar in the top-ranked echelons. The likes of electronics, procurement and fabrication, steel-pipe and tube, and engineering-R&D services are among the standout stars in this lineup.
Currently, the sector’s forward P/E ratio stands at a respectable 17.25X, outperforming the S&P 500’s ratio of 18.51X. Projections also tip the scales in its favor, with a forecasted 8.27% EPS growth, trumping the anticipated 6.12% growth for the S&P 500. The Industrial Select Sector SPDR XLI takes the stage with a Zacks Rank #2 (Buy).
Construction – Resilience in the Making (Zacks Sector Rank #3)
Bracing the headwinds of soaring prices and lingering mortgage rates, the U.S. housing sector is currently in the throes of a downturn. However, the overarching construction sector stands as a beacon of promise, with swells of positive earnings revisions awakening investor interest. Homebuilders, air conditioners and heating, wood, mobile homes, and RV builders radiate optimism in this segment.
Trade pundits notice that the construction sector is undervalued compared to the S&P 500, with an EPS growth outlook that overshadows its broader market counterpart. Investors eyeing this sector can set their sights on the Invesco Building & Construction ETF PKB to capitalize on this momentum.
Aerospace – Defying Gravity (Zacks Sector Rank #5)
The aerospace sector’s performance hit a stumbling block in the first half of 2024, nosediving by 4.8%. Antipathy from investors may stem from its slightly higher valuation than the S&P 500 and its historical EPS growth trailing behind the broader market. Despite this, the tide could turn soon, as a projected EPS growth rate of 18.19% (in comparison to the S&P 500) casts a hopeful shadow over the sector.
Fundamentals are signaling a positive uptrend in the aerospace realm, swayed by geopolitical tremors fueling heightened global defense expenditures. The stars align favorably for growth in this segment, with the iShares U.S. Aerospace & Defense ETF ITA holding a Zacks Rank #2.
Prepare for takeoff toward promising investment opportunities within these sectors!