ETFs
5 Top-Ranked ETFs to Buy for a Turnaround – May 14, 2024
Even as the market as a whole hovers around record highs, it’s important to note that not all stocks and ETFs in the market as a whole are necessarily equally successful. Several stocks and ETFs are far from their highs. This situation presents an opportunity for long-term investors to discover the hidden gems and exercise the buy-the-dip strategy.
Given this, we’ve highlighted five ETFs from different areas that have plunged the most so far this year, but have a solid Zacks ETF Rank #1 (Strong Buy) or 2 (Buy). Notably, the S&P 500 is up about 9.5% this year.
Cloud Computing – ETF GlobalNAIL – Free report) – Zacks Rank #1; Down 12.4% year to date
Cloud computing has been at the forefront of technological growth in recent years, providing efficient solutions for businesses and consumers. The widespread adoption of remote work and e-commerce has continued to fuel the need for scalable and reliable cloud solutions.
Additionally, advancements in cloud technologies, including artificial intelligence (AI), machine learning (ML), and improvements in cybersecurity, have expanded the use cases for cloud services, attracting a broader customer base.
The CLOU fund has an expense ratio of 0.68% and moderate company-specific concentration risk. The fund is not a good target for dividend yields.
Transportation – SPDR S&P Transportation ETF (XTN – Free report) – Zacks Rank #2; Down 4.7% since the start of the year
As the global economy shows signs of improvement as the pandemic eases, increased activities and increased demand for transportation are understandable. Investors should note that transportation and warehousing employment increased by 22,000 in April, where couriers and messengers and warehousing and storage saw notable gains.
It is agreed that the pessimistic sentiment of American consumers due to high inflation is currently a drag, but this recession could be temporary (read: 4 Sector ETFs and Stocks Likely to Benefit Despite Weak Jobs Data).
The XTN fund has an expense ratio of 0.35% and an annual dividend yield of 0.81%. The fund has low company-specific concentration risk.
Pharmaceuticals – SPDR S&P Pharmaceuticals ETF (XPH – Free report) – Zacks Rank #2; Down 2.1% since the start of the year
The sector benefits from safe haven status in a context of market uncertainty linked to the Fed’s next decision and the geopolitical crisis. In this volatile context, investing in the medical/health sector makes sense. Job growth in the sector remains considerably decent, indicating higher activity in the space.
The XPH fund has an expense ratio of 0.35% and an annual dividend yield of 1.46%. The fund has moderate company-specific concentration risk.
Small-Cap Value – iShares S&P Small-Cap 600 Value ETF (IJS – Free report) – Zacks Rank #2; Down 2.1% since the start of the year
The US economy remains resilient. Yes, despite the fourth quarter of 2023 showing robust growth of 3.4%, the top line for the first quarter of 2024 was a more modest 1.6%. But Fed Chairman Powell pointed out that private domestic purchases (PDP), which subtracts government purchases and exports from total demand, showed a smaller slowdown, to 3.1% growth.
Powell pointed out that this measure indicates less slowdown in growth while inflation remains uncomfortably high, indicating higher and longer interest rate policy. In this context, small-cap value ETFs, which perform well in an improving economy where rates are higher, appear to be good bets.
The IJS fund has an expense ratio of 0.18% and an annual dividend yield of 1.49%. The fund has very low company-specific concentration risk.
Consumer Discretionary – Consumer Discretionary Select Sector SPDR ETF (XLY – Free report) – Zacks Rank #1; Down 0.2% since the start of the year
U.S. consumers continue to spend decently despite high interest rates thanks to solid wage growth. Brian Moynihan, CEO of Bank of America Corp., recently said consumer spending increased 3% to 4% in May compared to last year. as cited on one sourcewhich is a decent number to indicate the growth of the sector.
Investors should also note that although the XLY fund is in the consumer discretionary category, it is geared toward technology. The fund is heavily exposed to Amazon with 23.28% exposure, followed by Tesla (10.2%) and Home Depot (10.17%). While Tesla stock is going through a rough patch, Amazon is currently in great shape and should favor the fund going forward. Both stocks are known for their technology focus.
Meanwhile, shares of home improvement company Home Depot are flat this year. Another home improvement stock, Lowe’s Companies, which has a 4% exposure to the fund, is in the green this year. That’s a plus for the XLY fund, which charges 9 basis points in fees and returns 0.76% per year.
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