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Sector ETFs & Stocks to Buy This November

After a brutal October, November saw a solid start with the three major U.S. benchmarks hitting new highs on optimism over a divided government and vaccine for coronavirus.

Democratic candidate Joe Biden is likely to gain control of the White House while Republicans may keep the Senate. Per the latest ballot counting, Biden has become the presumptive president-elect of the United States while the fight for the control of the Senate is ongoing, as no candidate has reached the required 50% threshold to win outright.

Meanwhile, promising results from the U.S. drugmaker Pfizer PFE and German biotech firm BioNTech for their COVID-19 vaccine candidate lifted investors’ confidence. The data from their late-stage trial showed that the candidate was more than 90% effective in preventing the disease.

The current trends reflect the historical outperformance. This is especially true as November is historically the best month of the year. According to the Stock Trader's Almanac, the S&P 500 has gained an average of 1.6% in November since 1950. In election years, the S&P 500 has jumped 1.5% on average.

November marks the start of the best six months for the Dow Jones and the S&P 500, and the best eight-month period for the Nasdaq, according to Almanac, citing “fourth-quarter cash inflows from institutions.” Additionally, November has been the second-best month for the Dow Jones since 1950, the Nasdaq since 1971 and Russell 2000 since 1979. The month is the best for the S&P 500 since 1950.

Moreover, seasonality plays a vital role in the stock market surge during the six-month period from November to April. Cyclical stocks from consumer discretionary, industrials, financials and energy tend to benefit the most. This trend has been well observed lately with financials, energy and airlines surging on the vaccine news.

As a result, we have highlighted one ETF and stock from each of these sectors that could make a great play for investors. All these ETFs and stocks have a top Zacks Rank #1 (Strong Buy) or 2 (Buy). For the stocks, we have used a Growth Score of A, a top-ranked Zacks industry (top 45%), and an estimated double-digit earnings growth for the current year.

Industrials

Industrial Select Sector SPDR XLI: This is the most-popular ETF in the industrial space with AUM of $14 billion and average daily volume of around 12.5 million shares. The fund follows the Industrial Select Sector Index, holding 73 stocks in its basket. It is well spread out across sectors with machinery, aerospace & defense, industrial conglomerates, and road & rail that make up for double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Unifi Inc. UFI: This is a global textile solutions provider and one of the world's leading innovators in manufacturing synthetic and recycled performance fibers. The company has an estimated earnings growth rate of 150.8% for fiscal year (ending June 2021). The stock has a Zacks Rank #2.

Consumer Discretionary

Vanguard Consumer Discretionary ETF VCR: This fund follows the MSCI US Investable Market Consumer Discretionary 25/50 Index and holds 290 stocks in its basket. Internet & direct marketing retail is the top sector with 28.3% of the portfolio while home improvement retail and restaurants account for the next two spots with a double-digit exposure each. VCR charges investors 10 bps in annual fees while volume is good at nearly 136,000 shares a day. The product manages an asset base of about $4 billion and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vista Outdoor Inc. VSTO: This company develops, manufactures and distributes optics, accessories and eyewear. The stock has an estimated earnings growth rate of 995.8% for the fiscal year (ending March 2021) and carries a Zacks Rank #1.

Financials

Financial Select Sector SPDR Fund XLF: This is the most-popular financial ETF with AUM of $20.6 billion and an average daily volumes of around 58.7 million shares. This fund follows the Financial Select Sector Index and provides exposure to companies in the diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It holds 65 stocks in its basket and charges investors 13 bps in annual fees.

Aarons Inc. AAN: It is a major omni-channel provider of lease-purchase solutions, mainly to underserved and credit-challenged customers. The stock has an estimated earnings growth of 29% for this year and a Zacks Rank #2.

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