4 best-ranked undervalued sector ETFs to buy in 2022


The final month of the year has brought joy to Wall Street, with the S&P 500 gaining about 4.3% in the past month on allaying Omicron fears and more upbeat news on therapies and drugs. boosters (read: Pfizer ETFs to Raise on FDA EUA for COVID-19 Oral Antiviral Pill).

It has been a very bullish year for the S&P 500 with gains of around 27.6%. With the Fed’s tightening policies now, the index looks a bit overvalued. The forward price-earnings ratio of the S&P 500 (for the first quarter of 2022) was 22.88 fold.

In this context, it would be interesting to highlight a few sector ETFs that have lower than average P / E ratios in the space. The sector ETFs mentioned below have a lower P / E (36 months) than the largest ETF SPDR S&P 500 ETF ESPION (21.70x) and a Zacks Rank # 2 (Buy).

These sector ETFs are IShares US Home Construction ETFs ITB, Materials Select Sector SPDR ETF XLB, SPDR Selected Healthcare Sector ETF XLV and Invesco Dynamic Food & Beverage ETF PBJ.

What are the bright spots in 2022?

Along with various research houses, we also believe earnings growth should be strong, driven by consumer spending and capital spending. Through Zacks earnings trends released on December 15, 2021, S&P 500 earnings are expected to grow 8.7% in 2022 above the expected earnings growth of 45.4% in 2021. Revenue is expected to increase 7.4% in 2022 on top of the likely gains of 11 , 7% in 2021. Margins are expected to be 0.15% and 3.15% in 2022 and 2021, respectively.

The White House adopted the Biparty $ 1.2 trillion infrastructure bill in November. That is expected to boost Wall Street in 2022. The infrastructure bill of $ 550 billion in addition to previously approved funds of $ 450 billion for five years is a positive wind for US economic growth. The 2,702-page legislation aims to provide the United States with the best economic infrastructure in the world (read: 4 sector ETFs to make the most of the infrastructure bill).

Household and business cash flowbattery will pull the economy. In September, the Federal Reserve announced that US household net worth was $ 134 trillion in the second quarter, down from $ 128.4 billion in the first quarter. That figure stood at $ 110 trillion in the fourth quarter of 2019, before the pandemic struck. Including nonprofits, household accumulated net worth in the second quarter hit a record high of $ 141.7 trillion, as reported by the Wall Street Journal. Total cash on hand and in US banks held by US corporations was $ 268 trillion in the second quarter of 2021, up from $ 262.9 trillion in the first quarter and $ 155.7 trillion in the fourth quarter of 2019.

Overall, the investment environment is quite mixed with dangers and opportunities on either side. While corporate earnings and cash balances are in good shape, inflationary pressure is a drag. The supply chain disruptions caused by a pandemic and concerns about rising rates amid the Fed tightening cannot be reversed. Let’s discuss ETFs in detail.

Home Construction – iShares US Home Construction ETFs (ITB)

The thirst to buy a home has grown even in the face of rising house prices and supply chain disruptions, benefiting home builders. No wonder the data on existing home sales is strong.

Rank # 2

P / E: 16.59x

Materials – Materials Select Sector SPDR ETF (XLB)

Rising inflation is a plus for material prices. Sector profits in Q4 are expected at 77.1% against 136.1% in Q3. Sector revenues are expected at 27.8% in Q4 against 38.7% in Q3. The profit growth projection is the highest among the 16 S&P 500 sectors covered by Zacks, while the revenue growth projection is the third highest (read: Fourth Quarter Estimates Fall: 4 Sector ETFs See Positive Revisions).

Rank # 1

P / E: 16.88 x

Healthcare – Healthcare Select Sector SPDR ETF (XLV)

As long as the fear of COVID-19 is there, the demand for therapies and vaccines will remain strong. Therefore, XLV should be watched closely.

Rank # 2

P / E: 17.38 x

Consumer Staples – Invesco Dynamic Food & Beverage ETFs (PBJ)

The demand for food and drink is expected to remain in the hottest zone for the next few days as they are necessary items and less shaken by economic weakness, if any (read: 4 ETF domains to play bullish manufacturing data).

Rank # 2

P / E: 17.84 x

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SPDR S&P 500 ETF (SPY): ETF Research Reports

Materials Select Sector SPDR ETF (XLB): ETF Research Reports

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

IShares US Home Construction ETF (ITB): ETF Research Reports

ETF Invesco Dynamic Food & Beverage (PBJ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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