Tuesday’s ETF To Watch: PBJ

by on July 13, 2010 | ETFs Mentioned:

With the economy dangerously close to falling into a double dip recession, many investors have staked their hopes of another market rally on earnings reports and positive guidance for the rest of 2010. Yesterday afternoon this process officially got underway, with Alcoa and CSX both reporting quarterly results after the bell on Monday. Alcoa was able to beat estimates by 1 cent a share and handily beat last year’s second quarter (when the company lost 20 cents a share). This helped to propel the company up by more than 3% in after-hours trading, and should give markets a boost at the open on Tuesday. Meanwhile in the transportation sector, CSX easily beat estimates by posting earnings of $1.07 a share (compared to estimates of 96 cents for the second quarter). But the company was unable to post especially robust sales numbers, only beating expectations by less than 4%. CSX also got a boost in after-hours trading, but nothing compared to Alcoa’s gains [also see Who Else Wants A Railroad ETF?].

After these early bullish reports, all eyes will now shift to the technology and consumer sectors which both have key components reporting earnings later today. In addition to Intel,  a company that we highlighted in Monday’s edition of Three ETFs To Watch This Week, look for consumer goods companies, specifically those in the food and beverage sector, to be in focus today. That’s due to the second quarter earnings of fast food giant Yum! Brands (YUM), the parent company of Pizza Hut, KFC, and Taco Bell. Analysts expect the company to report earnings of 54 cents per share on revenue of $2.54 billion. In the year-ago quarter, the company reported earnings of 50 cents per share on revenue of $2.48 billion.

YUM’s report will offer an interesting look at the consumer sector, since the company maintains both established business in the U.S. and a quickly growing segment in many of the world’s key emerging markets (including China and India). It will be interesting to see what YUM’s guidance is for the rest of the year in the U.S. market given the high unemployment levels compared to booming developing markets. In the first quarter, same store sales in the U.S. were down 1% while operation profits increased in China by 37% [see Nine Twists On Sector ETF Investing].

Food & Beverage ETF In Focus

With this report on tap, look for the PowerShares Dynamic Food & Beverage ETF (PBJ) to be in focus during Tuesday’s trading–since the fund’s top holding is Yum! Brands (5.7%). In addition to this top allocation, PBJ tracks 30 companies with a focus on the food and beverage industries. Some of its other top holdings include household names that also look to be impacted by YUM’s report such as Starbucks and McDonald’s, the second and third largest holdings in the fund, respectively. Although the fund has a heavy focus on large and giant capitalization level firms (which make up roughly half of all assets), it also has a sizable allocation towards medium (25%) and small caps (22%). Despite a rough few months for the overall market, PBJ has jumped higher by almost 10% so far in 2010, and more than 20% over the past 52 weeks. If Tuesday’s report impresses, those trends could continue [also see Does Your Portfolio Have A Craving For PBJ?].

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Disclosure: No positions at time of writing.