Credit: Shutterstock photoI t's now November. Can't believe it? As retailers such asAmazon ( AMZN ) andBest Buy ( BBY ) ramp up for Black Friday, investors in ETFs holding retail stocks are feeling lucky.
Consumer Discretionary Select Sector SPDR ( XLY ), the largest exchange traded fund holding companies in the restaurant, media, apparel, automobile and retail-focused industries, posted its best month year-to-date in October, rising 9%.
The sector is leading earnings growth for the third quarter. Its earnings are forecast to grow 15% in 2015 vs. 9% for the S&P 500 index. That trend is seen holding through the end of 2016.
"Even with strong earnings prospects, we believe there's still meaningful upside in many consumer discretionary stocks," says Todd Rosenbluth, S&P Capital IQ's director of ETF research in the U.S.
XLY has seen several holdings outperform in 2015, including its No. 1 stock, Amazon.com, which has a 10% portfolio weighting.
The e-commerce giant, a member of IBD's prestigious Leaderboard list, hit an all-time high Friday after doubling in value since the start of the year. It blew past third-quarter profit and sales estimates in its Oct. 22 report, fueled by cloud computing growth.
More than half of XLY's 10 largest stock holdings, includingStarbucks ( SBUX ),Comcast ( CMCSA ) andDisney (DIS), hold solid potential for successful investing , Rosenbluth said.
XLY has 50% of its assets in these 10 stocks combined.
Investors are taking heart from "this crucial sector of the stock market" amid headwinds such as weak commodity prices, the strong dollar and global economic weakness, according to Capital IQ analysts.
Americans' consumption of goods and services accounts for two-thirds of U.S. GDP, they noted.
So the sector's earnings growth rate, coupled with the performance of individual companies, "will be key in establishing investors' mindsets and the directional momentum of the overall stock market in the coming year," they wrote in a recent report.
The trends may signal "investors' ongoing sense of optimism concerning the U.S. consumer," they added.
"Investors are expecting even stronger growth from Internet retail companies" such as Amazon andNetflix (NFLX), said Rosenbluth.
The Internet retail group ranks eighth among 197 industry groups that IBD tracks, up from 11 a week ago. The auto parts retail group ranks No. 7, vs. 17 a week ago.
O'Reilly Automotive (ORLY), an IBD 50 stock with a high Composite Rating of 98, is a constituent of XLY's 89-stock portfolio. So is another highly rated IBD 50 stock,Signet Jewelers (SIG).
Flow data show that consumer discretionary and retail stocks are busy making headway into investors' ETF strategies . They're benefiting from rising confidence among American consumers as well as historically low gas prices that are putting more discretionary money into their pockets.
Risks include a strong dollar impacting retail sales to international customers and weak advertising revenue crimping media companies, Rosenbluth said.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
