Believe in Icahn? Bet on These Apple ETFs - ETF News And Commentary
Blessed is the fertile ground on which Apple Inc. (AAPL) grows. First, the company posted impressive Q2 earnings in late April and then the tech icon impressed billionaire activist investor Carl Icahn who was all praises for this rosy Apple. Recently, Icahn called the shares of Apple “dramatically undervalued” at the current level of $130 per share (read: 3 Apple ETFs for Juicy Returns on Record Earnings).
Icahn thinks Apple’s shares should be worth $240 a share, which is 85% higher than the current level. Thanks to the comment, Apple shares added 1.1% on May 18 while it has advanced 0.5% after hours.
Talking about market capitalization, investors should note that Apple became the first U.S. company to attain a market cap of above $700 billion at the close of trading on February 10. At present, the company is sitting on around $750 billion of capital. Icahn believes that the Apple Watch and the company’s future ventures into the field of television and automobile (most likely) are yet to be factored in the current share price.
In an open letter to Apple Inc’s CEO Tim Cook, Icahn also advised deployment of the company’s free cash on aggressive buyback. In any case, the iPhone maker boosted its dividend by 11% and raised its share buyback program from $90 billion to $140 billion in April.
This is not the first time that Icahn, who has a considerable stake in Apple, is pushing management to buy back or has said that its shares are undervalued. Icahn talked about the undervalued status of Apple shares in August 2013 and October 2014. Since his October statement, Apple shares have added over 30% (as of May 18, 2015).
Investors should note that Apple has been instrumental in driving the entire technology sector’s Q1 performance. Excluding Apple from the sector’s results, the revenue growth rate falls to 1.6% from 7.4% while earnings growth slips from 6.8% to a contraction of 2.4%, as per Zacks Earnings Trend.
Apple has seen solid earnings estimate revisions for the current fiscal and the next over the past one month as about 68% of the analysts have revised their estimates upward for this year and 58% of analysts have done the same for next year.
In fact, over the past one month, the consensus estimate for fiscal 2015 has risen from $8.59 to $8.93 per share while fiscal 2016 estimates have climbed from $9.16 to $9.52 per share. This suggests a bright outlook for the company.
Though the stock resides in the bottom 27% of the Zacks Industry Rank, it has a Zacks Rank #2 (Buy). It has a decent Zacks Style score with each of the growth, value and momentum criterion having a score of “B”. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential. So far this year, Apple shares are up about 18% (as of May 18, 2015).
Apple ETFs in Focus
Given that the bullish trend is likely to continue in the days ahead, we have highlighted three ETFs with heavy exposure to this tech giant for investors seeking to bet on the stock with much lower risk (read: Take a Bite into Apple with these Tech ETFs).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 140 stocks in its basket with AUM of $2.8 billion while charging 43 bps in fees and expenses. Volume is solid as it exchanges nearly 600,000 shares in hand a day.
Apple occupies the top position in the basket with 20.5% of assets. About 48% of the portfolio is allocated to software and services while technology hardware and equipment accounts for 36% share. The fund has added nearly 5.2% in the year-to-date timeframe (as of May 18, 2015) (read: Bet on These Top Ranked Tech ETFs for Outperformance).
Select Sector SPDR Technology ETF (XLK)
The most popular technology ETF XLK follows the S&P Technology Select Sector Index and has $13.2 billion in AUM. This fund trades in heavy volume of roughly 8 million shares and charges 15 bps in fees per year from investors. In total, the fund holds about 74 securities in its basket. Of these firms, AAPL takes the top spot, making up roughly 17.8% of the assets. The fund has returned 5.3% in the year-to-date time period (as of May 18, 2015).
Vanguard Information Technology ETF (VGT)
This fund manages about $7.5 billion in its asset base and provides exposure to a large basket of 387 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.12% in expense ratio while volume is moderate at nearly 350,000 shares.
Here again, AAPL is the top firm with 16.6% allocation. VGT is up 6.1% so far this year (see: all the Technology ETFs here).
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APPLE INC (AAPL): Free Stock Analysis Report
ISHARS-US TECH (IYW): ETF Research Reports
SPDR-TECH SELS (XLK): ETF Research Reports
VIPERS-INFO TEC (VGT): ETF Research Reports
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