ETFs in Focus as IBM Posts Another Quarter of Revenue Decline

Sweta Killa
·4-min read

After the closing bell on Oct 19, International Business Machines IBM reported robust third-quarter 2020 results. The company beat earnings estimates but missed on revenues.

Earnings per share came in at $2.58, surpassing the Zacks Consensus Estimate by 3 cents, but declining from the year-ago earnings of $2.68. Revenues declined 2.6% year over year to $17.56 billion and fell short of the consensus estimate of $17.61 billion.

The strength in cloud computing business was unable to contribute to the revenue surprise as most of the gains were offset by the weakness in much of its other businesses. Notably, Cloud revenues increased 19% to $6 billion in the quarter (read: Here's Why Cloud Computing ETFs Are Hot Right Now).

The company is shedding its legacy business to focus on the growing cloud business. Earlier this month, IBM announced that it would spin off its managed-infrastructure business as a new publicly traded company in a tax-free deal for IBM shareholders. The separation is expected to be completed by the end of 2021. The move will allow IBM to be "laser-focused on the $1 trillion hybrid cloud opportunity.”

Though Amazon AMZN and Microsoft MSFT dominate the cloud market, the spin-off would help to revive fortunes at the 109-year-old company. As the global pandemic encourages remote work, IBM is expected to gain sufficient market share from its high-margin open hybrid cloud and AI solutions (read: ETFs to Win From the Netflix, Amazon Q3 Earnings Faceoff).

As revenues are on a continued deceleration path, shares of IBM sank 3% in after-market hours. The stock has a Zacks Rank #3 (Hold) and a Value Score of A. It belongs to a top-ranked Zacks industry (top 29%).

ETFs to Watch

Given this, ETFs with the highest allocation to this tech giant will be in focus. Investors should closely monitor the movement of these funds and grab the opportunity whenever it arises.

First Trust NASDAQ Technology Dividend Index Fund TDIV

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed $1.2 billion in its asset base while trading in volume of around 92,000 shares per day. It charges 50 bps in annual fees and holds about 85 securities in its basket. Of these firms, IBM takes the top spot, making up roughly 8% of the assets (see: all the Technology ETFs here).

Invesco Dow Jones Industrial Average Dividend ETF DJD

This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 28 stocks in its basket, with IBM occupying the third position accounting for 7.1% allocation. DJD has been able to manage assets worth $78.3 million, while trading in volume of 25,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold).

Invesco S&P Ultra Dividend Revenue ETF RDIV

This product invests in securities on the S&P 900, which excludes the top 5% of securities by dividend yield, top 5% of securities within each sector by dividend payout ratio, selects the top 60 securities by dividend yield, and re-weighs those securities according to the revenue earned with a maximum 5% per company weighting. The fund holds 60 stocks in its basket, with IBM taking the fifth spot with 5% share. It has AUM of $547.9 million and average daily volume of 114,000 shares. The product charges 39 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.

First Trust Morningstar Dividend Leaders Index Fund FDL

With AUM of $1.2 billion, the fund offers exposure to stocks that have shown the highest dividend consistency and dividend sustainability by tracking the Morningstar Dividend Leaders Index. It holds 100 stocks and IBM takes the sixth spot in the basket with 5.1% allocation. FDL charges 45 bps in annual fees from investors and trades in a solid volume of about 252,000 shares a day. It has a Zacks ETF Rank #3 with a Medium risk outlook (read: Verizon to Buy Tracfone: ETFs in Focus).

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Invesco Dow Jones Industrial Average Dividend ETF (DJD): ETF Research Reports
 
First Trust NASDAQ Technology Dividend ETF (TDIV): ETF Research Reports
 
Invesco SP Ultra Dividend Revenue ETF (RDIV): ETF Research Reports
 
First Trust Morningstar Dividend Leaders ETF (FDL): ETF Research Reports
 
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