Play the Home Depot Earnings Beat With These 3 Mutual Funds – August 21, 2018

The Home Depot, Inc. (HD Free Report) posted favorable earnings results in its fiscal second quarter. The stellar show was largely due to the company’s rebound in the seasonal business compared with the fiscal first quarter. Additionally, the company’s relentless focus on affording innovative products, improving interconnected customer experience and driving productivity seems to be paying off.

Home Depot’s encouraging earnings results had a positive impact on the overall retail sector and boosted investor sentiment. Following these promising trends, investing in mutual funds with a significant holding in the Atlanta-based home improvement retailer is a wise choice.

Q2 Earnings in Focus

Home Depot’s fiscal second-quarter earnings came in at $3.05 per share, up 35.6% from $2.25 recorded in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.84. Notably, the company retained its five-year-long trend of beating earnings estimates.

Net sales advanced 8.4% to $30,463 million from $28,108 million in the year-ago quarter and beat the Zacks Consensus Estimate of $29,981 million. The company’s overall comparable-store sales increased 8%, while comps in the United States grew 8.1%. Moreover, sales reverted to a positive surprise trend after a miss in the last-reported quarter. (Read More: Home Depot Surges on Q2 Earnings & Sales Beat, Ups View)

Home Depot’s Rally Boosts Retail Sector

In the second-quarter earnings season, 24 of the 38 retailers on the S&P 500 have reported results as of Aug 17. Total earnings for the retail sector companies that have reported are up 34.9% from the same period last year on 9.7% higher revenues, with 91.7% beating EPS estimates and 75% beating revenue estimates.  (Read More: Strong Retail Sector Earnings Performance)

Additionally, out of the 11 Building Products – Retail companies, 10 reported earnings, with 4 beating on earnings, and one meeting estimates.

Home Depot became the latest company to come up with upbeat earnings and revenue growth levels. Additionally, the consumer discretionary sector has jumped 14.8% year to date (YTD), becoming the best performing sector on the S&P 500. In fact, the consumer discretionary sector’s performance is better than the S&P 500’s increase of 6.9%. Additionally, mutual funds related to this sector registered strong returns. According to Morningstar, consumer cyclical mutual funds have returned 8% YTD.

Buy 3 Mutual Funds

Here we have selected three mutual funds that have significant exposure to the retail sector and have Home Depot as one of the top three holdings. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

These funds also have encouraging one-year returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Fidelity Select Consumer Discretionary Portfolio Fund (FSCPX Free Report) seeks appreciation of capital. FSCPX normally invests at least 80% of its assets in common stocks of companies principally engaged in the manufacture and distribution of consumer discretionary services and products. The fund invests in both domestic and international consumers.

FSCPX carries an expense ratio of 0.78% compared with the category average of 1.39%. Moreover, FSCPX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 23.6%.

FSCPX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Amazon.com Inc, The Home Depot Inc and Netflix.com Inc were the top holdings for FSCPX.

Fidelity Select Construction & Housing Portfolio (FSHOX Free Report) invests a major portion of its assets in securities of companies involved in construction and design of commercial, residential and industrial facilities. FSHOX invests mainly in common stocks of both U.S. and non-U.S. companies.

FSHOX carries an expense ratio of 0.80% compared with the category average of 1.20%. Moreover, FSHOX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 12.2%.

FSHOX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, The Home Depot Inc, Lowe’s Companies Inc and Equity Residential were the top holdings for FSHOX.

Fidelity Select Retailing Portfolio (FSRPX Free Report) invests a large part of its assets in securities of companies engaged in merchandising finished goods and services primarily to individual consumers. FSRPX invests in both U.S. and non-U.S. companies.

FSRPX carries an expense ratio of 0.77% compared with the category average of 1.39%. Moreover, FSRPX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 36%.

FSRPX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Amazon.com Inc, The Home Depot Inc and Netflix.com Inc. were the top holdings for FSRPX.

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