ETFs Set to Surge as Cisco Sees Revenue Growth in 2 Years
After the closing bell on Wednesday, one of the tech primes, Cisco Systems CSCO, continued the strong momentum in the tech space with better-than-expected fiscal first-quarter results. The networking giant beat the earnings estimate while matched the revenue estimates. Additionally, it provided an upbeat outlook, expecting the first revenue growth in two years for the ongoing second quarter, suggesting the start of the company’s turnaround story (see: all the Technology ETFs here).
Results in Detail
Earnings of 61 cents per share outpaced the Zacks Consensus Estimate by a penny and were in line with the year-ago quarter. Revenues of $12.14 billion met the estimates but declined for the eight consecutive quarter, with a 2% year-over-year fall.
The networking leader’s transition from its traditional business of high-end switches and routers to high-growth areas such as security, the Internet of Things and cloud computing, is ongoing. In the reported quarter, the remarkable performance was driven by gains from its newer businesses such as security, which more than offset declines in its traditional switches and routers business.
As a result, Cisco now expects revenues to turn around and post the first revenue growth of 1-3% in the fiscal second quarter after eight consecutive quarters of decline. Earnings per share are expected in the range of 58–60 cents, the midpoint of which is above the Zacks Consensus Estimate of 58 cents.
The bullish revenue outlook has spread optimism into the company’s prospects, pushing CSCO shares up as much as 5.1% in after-hours trading. The stock rallied to levels not seen for more than 15 years. Currently, Cisco has a Zacks Rank #3 (Hold) and a VGM Style Score of B. It boasts a solid Industry Rank in the top 45%, indicating that the stock is primed for growth (read: 7 Top-Ranked Tech ETFs on Unstoppable Rally).
ETFs to Watch
Given this, ETFs having the largest allocation to this network giant will be in focus over the coming days. Investors should closely monitor the movement in these funds and grab the opportunity when it arises:
iShares North American Tech-Multimedia Networking ETF IGN
This ETF provides a concentrated exposure to domestic multimedia networking securities by tracking the S&P North American Technology-Multimedia Networking Index. Holding 24 securities in its basket, Cisco takes the second spot with an 8.8% allocation. The product has accumulated $46.3 million in its asset base while sees a lower volume of around 15,000 shares a day. Expense ratio comes in at 0.48%. The fund has added 6.2% in the year-to-date time frame and carries a Zacks ETF Rank #3 (Hold) with a High risk outlook.
First Trust NASDAQ Technology Dividend Index Fund TDIV
This fund provides exposure to the dividend payers in the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $784.2 million in its asset base and trades in moderate volume of about 58,000 shares per day. The ETF charges 50 bps in annual fees and holds about 95 securities in its basket. Of these firms, CSCO occupies the third position, making up roughly 7.9% of the assets. In terms of industrial exposure, the fund allocates one-fourth portion in semiconductor and semiconductor equipment, followed by software (14.6%), technology hardware, storage & peripherals (12.1%), diversified telecom services (10.1%), and communications equipment (9.8%). The fund is up 18% so far this year (read: Top Ranked Tech ETFs for Long Term Investors).
First Trust Nasdaq Cybersecurity ETF CIBR
This ETF follows the Nasdaq CTA Cybersecurity Index, which measures the performance of companies engaged in the cyber security segment of the technology and industrials sectors. It has accumulated $340.5 million in its asset base. The fund charges 60 bps in annual fees and trades in a moderate average daily volume of about $1 million shares. In total, the product holds 36 stocks in its basket, with Cisco taking the second spot at 6.3%. It is skewed toward the software industry at 52.8%, while communications equipment rounds off the next spot at 18.8% of assets. The fund has risen about 10.4% in the year-to-date time frame.
PowerShares Dynamic Networking Portfolio PXQ
This fund follows the Dynamic Networking Intellidex Index, holding 30 securities in its basket. Out of these, Cisco is the third firm, accounting for a 5.9% share. From a sector look, communication equipment accounts for 39% of the portfolio, followed by 36% in software and programming. The fund is unpopular and illiquid in the broad tech space with AUM of $22.8 million and average daily volume of about 3,000 shares. It charges 63 bps in annual fees and has gained 13.2% in the year-to-date time frame. PXQ has a Zacks ETF Rank #3 with a High risk outlook.
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