The Zacks Analyst Blog Highlights:SPDR S&P Oil & Gas Exploration & Production ETF, SPDR S&P Semiconductor ETF, Banco Santander,

CHICAGO, July 25, 2014 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the SPDR S&P Oil & Gas Exploration & Production ETF (AMEX:XOP-Free Report), SPDR S&P Semiconductor ETF (AMEX:XSD-Free Report), Banco Santander, S.A. (NYSE:SAN-Free Report), Eni SpA (NYSE:E-Free Report) and Telecom Italia S.p.A. (Nasdaq:TI-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Thursday's Analyst Blog:

2 Hot Summer #1-Ranked ETFs

This summer, the U.S. stock markets seem to be on fire. This is especially true as the S&P 500 and the Dow Jones Industrial Average are hitting multiple highs amid geopolitical tensions. In fact, the Dow crossed its major milestone of 17,000 early this month and the S&P 500 is just less than 1% away from the 2,000 threshold.

In such a booming market, it is prudent to focus on cyclical sectors, which generally crush the overall market during bullish upswings and protect investors from the worst of the global turmoil. This is because the performance of cyclical stocks depends on economic growth and business activity (read: Best ETF Strategies to Consider Now).

Investors could smartly ride out the economic and market upturns through a number of sector ETFs with a diversified portfolio and relatively much lower risk than individual stocks. Some of the sectors are clearly the major beneficiaries of the summer trends. Though finding the hot summer sectors is not at all a difficult task, searching the right company in a particular industry for the portfolio might be a tall order for investors.

Keeping this in mind, we have narrowed down the list of ETFs by using the Zacks ETF Rank. This system looks to take into account a variety of factors, such as industry outlook and expert surveys, and then apply ETF-specific factors (like expense ratios and bid/ask spreads) in order to find the best funds in each segment.

Using this system, we have found a handful of ETFs in cyclical sectors that have a Zacks ETF Rank of 1 or 'Strong Buy', and are thus poised to outperform in the months to come. In fact, we have found two such funds that were promoted by at least two levels at the start of H2 (see: all the Top Ranked ETFs).

SPDR S&P Oil & Gas Exploration & Production ETF (AMEX:XOP-Free Report)

This fund targets the energy sector and saw a strong bump from the Zacks ETF Rank 4 or 'Sell' rating thanks to geopolitics in Ukraine, Russia, Libya and the Middle East. The growing tensions in these countries are pushing up the energy prices thereby resulting in outperformance of the energy stocks. This trend is likely to continue in the second half.

Further, the oil/energy sector is expected to see robust earnings growth rising from 7.3% in the second quarter to 10.9% in the third and 13.5% in the fourth, as per the Zacks Earnings Trends. As such, XOP seems to be a solid choice in the energy space to play this surging trend. The fund follows the S&P Oil & Gas Exploration & Production Select Industry Index, holding 88 stocks in its portfolio.

The product provides equal weight exposure across a number of firms as each holds less than 1.5% of total assets. It has amassed nearly $1.1 billion in its asset base and trades in heavy volume of more than 3.7 million shares per day. The ETF charges 35 bps in annual fees from investors and has surged 16% so far this year (read: Market Beating Sector ETFs of 2014's First Half).

SPDR S&P Semiconductor ETF (AMEX:XSD-Free Report)

This ETF is leading the broad tech world this year returning nearly 25%, as investors' fled from the high growth Internet and social media stocks to value-centric traditional firms like semiconductors. This trend of migration will continue as the growth stocks remain expensive at the current levels. Further, encouraging industry fundamentals and growing semiconductor sales across the globe are fueling growth into the sector.

As a result, XSD has achieved the top level, up from #3 in our Rank hierarchy. XSD tracks the S&P Semiconductor Select Industry Index and holds 51 stocks in its portfolio. The product provides huge diversification benefits across each security as none of these allocates more than 2.6% of the assets (read: Top Performing US Sector ETF in Focus: XSD).

However, the fund is less popular and illiquid with AUM of $181 million and has an average daily volume of around 85,000 shares. Expense ratio is the lowest at 35 bps when compared to other semiconductor products in the space.

Bottom Line

These two cyclical sector ETFs have been the leaders in the broad market rally this year and have accounted for huge gains so far amid the global turmoil. Given that the bullish trend for these sectors will likely persist for the rest of summer, investors should definitely look to these ETFs or the other cyclical sector funds that have recently seen their Ranks surging to the #1 level.

Exit Germany: 3 Other Eurozone Choices

Enthusiasm for German stocks may be waning among U.S investors. As prices linger near record highs and the Eurozone's largest economy shows signs of slowing down, other countries in the region present more attractive options.

Economic Weaknesses

In July, investor confidence in Germany fell for the seventh consecutive month, ending up behind economist estimates. Industrial production declined for the third successive month in May. Additionally, a decline in factory orders in July exceeded estimates.

Other economies have far better reports on show. For instance, Spain's manufacturing PMI increased more than estimated in June. Additionally, industrial output and retail sales increased in May. Italy and Portugal also experienced an increase in retail sales, during April and May, respectively

Markets Hit Record Highs

In sharp contrast, German stocks have continued to move higher. The benchmark DAX index increased to a record high this month. The level was extremely close to its highest valuation achieved since 2009.

Last month, the DAX moved above the 10,000 mark for the very first time. Ultimately, the benchmark index reached a record high on July 3. The DAX has declined 2.9% since then after concerns over the Ukraine crisis intensified.

The bigger issue is that these impressive levels are not being supported by economic indicators. Germany has fallen behind other countries in the Eurozone, at least in the short term.

Weaker Bourses Gain

During the sovereign-debt crisis, the DAX had become a safe haven for investors. The idea behind investing in Germany was that the nation's export oriented corporations would draw on global growth to ride out regional concerns. This led to a 25% growth for the benchmark over the last two years.

However, the DAX has gained only 1.9% this year though it remains around record highs. In contrast the Italian FTSE MIB has gained 10% while the Spanish IBEX 35 has increased 7.4%. To put things in perspective, the Stoxx Europe 600 Index has moved up 4.3% this year.

Room at the Top

According to data from Bloomberg, the index of German stocks is trading 13.7 times more than estimated earnings. The gauge's valuation touched 14.1 on Jul 3, close to the highest level achieved since Dec 2009.

On the other hand, Spain's benchmark is 50% below the peak it achieved in 2007. Italy's benchmark and Portugal's PSI 20 would have to double their current levels to achieve the highs they hit the same year.

Valuation Advantage

This indicates that it is logical for investors to opt for other destinations in the Eurozone. But why would U.S. investors opt for potentially riskier options in the region? Valuations are the first reason, which have dominated market discourse in recent times, prompting remarks even from the Fed Chair.

Several analysts have underlined the fact that European stocks are undervalued compared to their American counterparts. This gives them greater scope for growth and the ability to outpace U.S. stocks performance.

ECB Stimulus

Additionally, market watchers believe the ECB will continue to support the Eurozone economy. ECB President Mario Draghi has already unveiled several decisive monetary measures. These include a negative deposit rate and long term refinancing measures.

Draghi also said the ECB is working on the specifics of an asset purchase plan. In effect, the Eurozone is putting in place details of stimulus measures even as the U.S. works toward winding down monetary easing. This gives investors another reason to invest in Europe.

Our Choices

Spain and Italy are two new investor destinations in Europe given the current political climate. Below we present three stocks from these countries which possess the potential to grow appreciably, each of which also has a good Zacks rank.

Banco Santander, S.A. (NYSE:SAN-Free Report) is a commercial bank based in Spain. The bank primarily operates in Spain, the U.K., Portugal, Latin America and the U.S. The bank has four operational segments. These are Sovereign, the U.K., Continental Europe and Latin America.

The Sovereign segment handles all financial operations of Banco Santander's U.S. subsidiary Sovereign Bank. This includes retail and wholesale banking operations as well as insurance and asset management.  

Banco Santander holds a Zacks Rank #2 (Buy) and has expected earnings growth of 16.70%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 15.94.

Eni SpA (NYSE:E-Free Report) is engaged in oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries along with its consolidated subsidiaries. The company is based in Rome, Italy.

The company's major business segments are Exploration and Production (E&P), Gas and Power, and Refining and Marketing. The company conducts its major exploration and production activities for hydrocarbons.

Currently the company holds a Zacks Rank #3 (Hold) and has expected earnings growth of 7.40%. It has a P/E (F1) of 14.91.

Telecom Italia S.p.A. (Nasdaq:TI-Free Report) is an Italian company operating in the communications sector. The company offers fixed and mobile services for the national and international telecom sector. The company conducts its activities through five business units.

Telephone and data services, both fixed and mobile are provided by the domestic unit. The Brazil and Paraguay units offer mobile services while the Argentina unit offers both fixed and telecom services.  The company also has a media unit and offers office products and services through its Olivetti unit.

Apart from a Zacks Rank #3 (Hold), Telecom Italia has expected earnings growth of 14.70%. It has a P/E (F1) of 13.14.

A German Resurgence?

It is difficult to deny the fact that Germany has companies which are the most efficient and competitive compared to others in the Eurozone. The crisis in Ukraine has dented market fortunes. But given the nation's inherent strengths, a recovery may not be far off. However, the question about high valuations remain, which is why investors may find other options lucrative This is why these stocks would make good additions to your portfolio.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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