Category Archives: etf

Why You Should Be Paying Attention To Netflix’s Stock Chart

Loading the player… Get ready to grab your popcorn — we’re now less than a week away from Netflix ’s ( NFLX ) Q1 earnings report next Monday, April 18. In Tuesday’s session, the stock was able to retake a critical level — the 200-day line — that it has been struggling to recapture. Can it hold above that level Wednesday? Global Rollout Impacts Financials The video-streaming powerhouse’s bottom line is projected to drop 73% to three cents a share as amid rising costs for its global rollout. Netflix hasn’t seen that large an earnings decline since Q4 2012. Analysts expect revenue for the quarter to jump 25% to $1.97 billion, which would be Netflix’s fastest growth in the last four quarters. All Eyes On Subscriber Growth And maybe even more so than those figures, Wall Street will be looking closely at subscriber growth — a key metric for Netflix. In Q4, Netflix’s earnings and revenue beat estimates. So did its overall subscriber additions of 5.6 million, boosted by international markets. But its U.S. subscriber additions of 1.56 million missed expectations for 1.65 million new subscribers. The miss represented a slowdown in U.S. growth and sent shares tumbling over the next several weeks. Netflix may be able to redeem itself. A Baird survey out late last month points to “solid” U.S. additions in Q1, fueled by the recent launches of new seasons of original shows like “House of Cards” and “Daredevil.” Netflix itself has projected 6.1 million net additions for Q1 vs. 4.9 million a year earlier. Stock Retakes Key 200-Day Line Look for positive results to be a catalyst for the stock, which is currently trading 20% below its all-time high, reached in early December. Netflix has struggled to retake the 200-day line but finally climbed above that level Tuesday as it rallied 4.2%. Shares have risen more than 30% from their February low, hit in the wake of Netflix’s last quarterly report. Netflix Originals Seen As No. 1 In May, “grandfathered-in” subscribers will see a $2 price increase to $9.99 a month. One analyst sees the price increase creating a churn of just 3% to 4%, which is relatively low. One big reason why cord cutters may be unlikely to cut their Netflix subscriptions is the content. Morgan Stanley says that Netflix’s original content is now No. 1, putting it above Time Warner ( TWX )-owned HBO for the first time in the six years that Morgan Stanley has been tracking the video services. Still, the company faces stiff competition from a growing list of competitors besides HBO, including Hulu — co-owned by Walt Disney ( DIS ), 21st Century Fox ( FOXA ) and Comcast ( CMCSA ) — and Amazon ( AMZN ) Video. Will Disney Acquire Netflix? Netflix’s leadership in video streaming could make it a good acquisition target for Disney — or so said BTIG analyst Rich Greenfield in a report last week. He says that the buy would help the House of Mouse with succession planning and the erosion of its ABC and ESPN broadcast businesses. But whether or not Disney is actually interested in the move remains to be seen. Image provided by Shutterstock .

Q1 Earnings Trend Spells Trouble For Bank ETFs

The financial sector has been on a rough ride since the start of the year even though the broader market sentiments have shown recovery. Most of the pain came from the banking sector, which had a worst start to the year since the financial crisis in 2007-2008, as lower interest rates continued to restrict profitability by shrinking the interest rate spread. This is because banks seek to borrow money at short-term rates and lend at long-term rates. Now, if short-term rates do not rise and long-term rates fall, banks will earn less on lending and pay more on deposits, thereby leading to a tighter spread. Additionally, concerns about slow growth in China and the impact of persistently low oil prices on the energy sector have put pressure on investment banking and trading activities as well as loan growth. According to Dealogic, global investment banking revenues (fees paid for advice on mergers and acquisitions, debt and equity underwriting and syndicated loans) plunged 36% year over year in the first quarter to $12.8 billion. This represents the lowest quarterly number since the height of the financial crisis. The continued market turmoil has pushed down trading activities across the globe with banks witnessing a drop of as much as 56% in their trading businesses. Further, banks that are highly exposed to the energy sector have increased their loan reserves due to a prolonged decline in crude oil prices. The higher provisioning to cover the bad loans of the energy companies are weighing on the overall banking earnings picture and could result in deteriorating credit quality. Given the spiral of woes, analysts expect an average decline of 20% in earnings from the six largest U.S. banks, according to Reuters . In particular, Goldman Sachs (NYSE: GS ) is expected to post the largest decline of 54.2% when it releases its results before the market opens on April 19, as per the Zacks Estimate. This is followed by expected earnings decline of 41.68% for Morgan Stanley (NYSE: MS ), 31.43% for Citigroup (NYSE: C ), 18.52% for Bank of America (NYSE: BAC ), 13.29% for JPMorgan (NYSE: JPM ) and 5.45% for Wells Fargo (NYSE: WFC ) when they report in the coming days. Further, these banks have an unfavorable Zacks Rank of #4 (Sell) or #5 (Strong Sell) with VGM Score of D or F, suggesting that they will underperform the market when the results are released. Moreover, the downside in this corner can be confirmed by the Zacks Industry Rank, as five out of seven banking industries actually have a negative rank in the bottom 40% at the time of writing. All these indicate significant weakness in the broad financial sector given that the banks are the major contributors to its growth (see: all the Financial ETFs here ). As a result, investors should avoid bank ETFs heading into the earnings season. Below, we take a closer look at four bank ETFs that have lost in double digits so far this year. Though these funds might have a Zacks ETF Rank of 3 or ‘Hold’ rating, the weakness is expected to continue given the bearish earnings outlook. PowerShares KBW Bank Fund (NYSEARCA: KBWB ) This fund provides exposure to 24 stocks by tracking the KBW Nasdaq Bank Index. It is moderately concentrated across various components with each holding no more than 8.05% share. Though banks account for 84% share, consumer finance and investment companies also take minor allocations in the basket. The fund has amassed $297 million and trades in solid volumes of 387,000 shares per day on average. Expense ratio came in at 0.35%. The ETF has shed 13.6% in the year-to-date time frame. SPDR S&P Bank ETF (NYSEARCA: KBE ) This fund tracks the S&P Banks Select Industry Index and has an AUM of $2.2 billion. Volume is heavy as it exchanges nearly 3 million shares a day while the expense ratio is 0.35%. The product holds a diversified basket of 64 stocks with none holding more than 2.18% of total assets. From a sector look, about three-fourths of the portfolio is allotted to regional banks while diversified banks, thrifts & mortgage finance, asset management & custody banks and other diversified financial services take the remainder. The fund has lost about 12% so far this year. SPDR S&P Regional Banking ETF (NYSEARCA: KRE ) With AUM of nearly $1.7 billion and average daily volume of around 6.3 million shares, this product follows the S&P Regional Banks Select Industry Index, charging investors 35 bps a year in fees. Holding 100 securities in its basket, the fund is widely spread out across each security, with none holding more than 2.77% of assets. The fund is down 11.6% in the year-to-date time frame. iShares U.S. Regional Banks ETF (NYSEARCA: IAT ) This ETF offers exposure to 54 regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. The top two firms – U.S. Bancorp (NYSE: USB ) and PNC Financial Services (NYSE: PNC ) – dominate the fund’s return with a combined 29.5% of assets. Other firms hold less than 7.4% share. The fund has amassed $390.5 million in its asset base while sees good volume of 308,000 shares a day. It charges 44 bps in annual fees and has shed 10.7% so far this year. Original Post

Beat Weak Q1 Earnings With Revenue-Weighted ETFs

The overall Q1 earnings picture looks bleak, with projected earnings growth deep in the negative territory for the fourth consecutive quarter. In fact, the magnitude of negative revisions over the last three months has been the highest among the recent quarters. Q1 earnings are expected to decline 11.1% versus the 6.4% drop in Q4, as per the Zacks Earnings Trend . However, the projected revenue decline of 2.3% for Q1 is much better than the Q4 revenue decline of 6.6%. Against this backdrop, revenue-weighted ETFs will likely take the lead over earnings-weighted strategies and could be the potential outperformer this earnings season. Why Revenue-Weighted ETFs? First, while a series of headwinds have been weighing on the profitability of companies, the depreciation in the dollar could offer some relief to the top line. As such, many companies could come up with an unexpected growth in revenues in their quarterly reports, giving a boost to the revenue-weighted ETFs. Notably, the ICE U.S. Dollar index, a measure of the dollar’s strength against a basket of currencies, fell to the lowest level in nearly eight months. Second, revenue-weighted funds have outperformed the earnings counterparts in both the short and long-term periods, proving the credibility of the superior weighting methodology. This is because revenues are a better indicator of a company’s financial health. The top line is harder to manipulate or alter on a quarter-by-quarter basis, as opposed to earnings, which can easily be fattened using accounting tricks, thereby leading to inaccuracy. The earnings-weighted ETFs do not reflect the true picture of the company and raise the risk in the portfolio. As a result, tilting toward the revenue metric is a more sensible choice. For investors seeking to do this, there is a small lineup of U.S.-focused ETFs that accomplish this task. Below, we have highlighted the funds that could be great choices for investors seeking to make money from the weak earnings season, while at the same time focus on one of the most important aspects of stock investing. RevenueShares Large Cap ETF (NYSEARCA: RWL ) This fund provides exposure to the top revenue-generating companies within the large-cap segment of the broad U.S. stock market. It consists of the same securities as the S&P 500 Index. Holding 500 stocks in its basket, the fund is concentrated on the top firm – Wal-Mart (NYSE: WMT ) – at 4.7% of total assets, while other firms hold no more than 2.4% share. However, the product has a diverse exposure to a number of sectors, with consumer staples, consumer discretionary and financial occupying the top three positions. The ETF has amassed $320.7 million in its asset base and charges 49 bps in annual fees. Volume is light, trading in about 33,000 shares a day. The fund is up 0.8% in the year-to-date time frame. RevenueShares Mid Cap ETF (NYSEARCA: RWK ) This ETF tracks the S&P MidCap 400 Index, providing exposure to the 400 top revenue generators. It is widely spread across components, with none holding more than 3.26% share in the basket. From a sector look, consumer discretionary, industrial and consumer staples take the top three spots with double-digit exposure each. The fund charges 54 bps in fees per year, while it trades in average daily volume of nearly 22,000 shares. It has accumulated $187.7 million in AUM and has added 3.7% so far in the year. RevenueShares Small Cap ETF (NYSEARCA: RWJ ) This fund targets the small-cap segment of the U.S. equity market. It follows the S&P SmallCap 600 Index and holds 600 stocks. RWJ provides a nice balance across a number of components, with each holding less than 2% share in the basket. However, it is slightly tilted toward industrials and the consumer discretionary sector at nearly 22% each, while consumer staples and financials round off the top four. The product has managed assets worth $276.6 million and sees a light volume of about 30,000 shares per day. It charges 54 bps in expense ratio and is up 2.1% year to date. RevenueShares Navellier Overall A-100 ETF (NYSEARCA: RWV ) This ETF is unpopular and illiquid in this space, with AUM of just $7 million and average daily volume of under 1,000 shares. It tracks the Navellier Overall A-100 Index and weighs securities by the top line. The product holds a basket of 100 stocks, which are concentrated on the top 10 holdings at 54.43% of assets. ADRs make up for 23.9% share, while consumer discretionary and consumer staples round off the top three in terms of sector allocation. Unlike the other three, RWV is pretty spread across various market caps, though large caps account for the largest share at 65% of the total. It charges 60 bps in fees per year from investors and gained 0.4% in the year-to-date time frame. Bottom Line Based on the historical performance, the strategy to weigh stocks by revenue seems one of the most effective factors for weighting the index holdings. Though revenue-weighted ETFs cost more, these have the potential to generate higher returns than their earnings counterpart. Original Post