Can Q3 Earnings Bring Back The Allure For FAANG ETFs?

The FAANG stocks — Facebook (NASDAQ:FB) , Amazon (NASDAQ:AMZN) , Apple (NASDAQ:AAPL) , Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) L) — have been hit by worries over the U.S.-China trade conflict. Better-than-expected earnings releases could bring back the shine of these stocks.

Streaming giant, Netflix, the first company in the FAANG group to report Q2 earnings on Oct 16 after the market close, cheered investors with robust third-quarter 2019 results. The company topped earnings estimate and delivered strong subscriber growth, which represents a solid rebound from the second quarter when it lost U.S. streaming customers for the first time in eight years. However, Netflix missed the estimate on the top line. Subscription growth coupled with earnings beat has pushed shares of Netflix higher by as much as 7% on Oct 17 (read: ETFs to Tap on Netflix' Strong Subscriber Comeback in Q3).

Facebook

Facebook is expected to release its earnings report on Oct 30 after market close. It has a Zacks Rank #4 (Sell) and an Earnings ESP of +5.01%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The social media giant has seen negative earnings estimate revision of a penny for the to-be-reported quarter over the past month. Facebook came up with an average negative earnings surprise of 17.67% for the last four quarters. The stock has a VGM Score of C and belongs to a bottom-ranked Zacks industry (bottom 43%). However, the current Zacks Consensus Estimate for the yet-to-be reported quarter indicates earnings increase of 7.95% from the year-ago reported figure. Revenues are expected to increase 26.19%. Shares of FB lost about 8% in the past three months.

Amazon

Amazon, slated to report on Oct 24 after market close, has a Zacks Rank #4 and an Earnings ESP of +35.13%. The stock has seen positive earnings estimate revision of five cents over the past 30 days for the fiscal second quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator for the stock. However, the Zacks Consensus Estimate represents a substantial year-over-year decline of 22.43% (read: Should You Buy Amazon ETFs Ahead of Q3 Earnings?).

Amazon’s earnings surprise history is impressive, with a positive earnings surprise of 34.02% on average for the last four quarters. Additionally, the company is expected to report revenue growth of 21.2%. The stock has a top Growth Score of A and falls under a top-ranked Zacks industry (top 36%). The online e-commerce behemoth has witnessed a share price decline of 10.1% over the past three months.

Apple

Apple has a Zacks Rank #3 and an Earnings ESP of +0.68%. The stock saw no earnings estimate revision over the past 30 days for the third quarter and its earnings surprise history is strong. It delivered average positive earnings surprise of 3.04% over the past four quarters. However, Apple is expected to post substantial earnings decline of 2.75%. Revenues are expected to drop 0.52% year over year in the third quarter. It boasts a favorable VGM Score of C and belongs to a top-ranked Zacks industry (top 40%). The stock has rallied about 19% over the past three months. Apple is set to report earnings on Oct 30 (read: Should You Buy Apple ETFs Ahead of the Holiday Season?).

Alphabet

Alphabet has a Zacks Rank #3 and an Earnings ESP of -3.27%. It saw negative earnings estimate revision of a couple of cents over the past 30 days for the to-be-reported quarter and its earnings are expected to decline 4.1%. Additionally, the stock sports a top Growth Score of A and falls under a top-ranked Zacks industry (top 39%). However, its earnings surprise track over the past four quarters is good with the average beat being 18.85%. Revenues are expected to increase 20.92% from the year-ago quarter. The Internet behemoth has gained nearly 10% in the past three months. The company will report after the closing bell on Oct 28.

ETFs to Tap

Given this, investors may want to play these stocks with the help of ETFs. Below, we have highlighted four ETFs having the largest exposure to FAANGs.

Invesco QQQ QQQ: This fund makes up for 31.2% share in FAANGs and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

iShares North American Tech ETF (TSX:IGM) : This product accounts for about 29% in the FAANG group and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (see: all the Technology ETFs here).

iShares Evolved U.S. Technology ETF IETC: This fund accounts for 27.5% share in FAANG stocks.

iShares Russell 1000 Growth ETF IWF: This ETF allocates a combined 19.1% share in FAANG stocks and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Earnings Surprise May Lift Stocks: Buy These Growth ETFs).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Netflix, Inc. (NFLX): Free Stock Analysis Report

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Facebook, Inc. (FB): Free Stock Analysis Report

Alphabet Inc. (GOOG): Free Stock Analysis Report

Apple Inc. (AAPL): Free Stock Analysis Report

iShares Russell 1000 Growth ETF (IWF): ETF Research Reports

iShares Expanded Tech Sector ETF (IGM): ETF Research Reports

Invesco QQQ (QQQ): ETF Research Reports

iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports

Original post

Zacks Investment Research