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Apple ETFs to Watch Out For Ahead of Q1 Earnings

Sweta Killa

Technology giant Apple AAPL is set to release first-quarter fiscal 2019 results today after market close. Since Apple accounts for more than 19% of total market capitalization of the entire technology sector in the S&P 500 Index, it is worth taking a look at its fundamentals ahead of its quarterly results.

Apple has returned about 26% over the past three months, outperforming the industry’s gain of 16.3%. The momentum can continue if the company beats estimates in the soon-to-be reported quarter.



Inside Our Methodology

Apple has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. According to our surprise prediction methodology, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 and a positive Earnings ESP raises the possibility of a beat. A Zacks Rank #4 (Sell) or 5 (Strong Sell) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Apple has seen negative earnings estimate revision of 49 cents over the past 30 days for the fiscal first quarter. Analysts lowering estimates right before earnings — with the most up-to-date information possible — is a pretty bad indicator for the stock. However, the company has a strong track record of positive earnings surprise. It delivered average positive earnings surprise of 3.86% in the trailing four quarters. It is expected to post earnings growth of 7.2% but revenues are likely to decline 4.75% in the fiscal first quarter (read: FAANG ETFs in Focus Ahead of Q4 Earnings).

Though AAPL has a solid Growth Score of A, its Value and Momentum Score of C and F, respectively, is disappointing. The stock belongs to a top-ranked Zacks Industry (top 42%).

According to the analysts polled by Zacks, Apple has an average target price of $197.04 with nearly 44% of the analysts having a Strong Buy or a Buy rating ahead of its earnings. This indicates nearly 26% upside to the current price of AAPL.

What to Watch?

Earlier in the month, the technology giant trimmed its fiscal first-quarter revenue guidance to $84 billion from $89-$93 billion. This was an extraordinary move as Apple cut its quarterly revenue forecast for the first time in more than 15 years. Slowing sales in China and fewer iPhone upgrades due to trade tensions with China and weakness in emerging markets resulted in the guidance cut.

However, Cook mentioned that many areas have shown remarkable performance during the soon-to-be reported quarter. Apple's device install base hit a new all-time high, growing by more than 100 million units over the last year (read: Apple Tanks, Lowers Q4 Revenue Outlook: Tech ETFs in Focus).

Revenues outside the iPhone business grew almost 19% year over year, including all-time record revenues from Services, Wearables and Mac. Service revenues grew to more than $10.8 billion and the company is on track to achieve the goal of doubling the size of the business from 2016 to 2020. Wearables grew almost 50% year over year, as Apple Watch and AirPods were wildly popular among holiday shoppers. Launches of MacBook Air and Mac mini powered the Mac year-over-year revenue growth while the launch of the new iPad Pro drove iPad year over year double-digit revenue growth.

Apple expects revenues in several developed countries, including the United States, Canada, Germany, Italy, Spain, the Netherlands and Korea and a few emerging markets, including Mexico, Poland, Malaysia and Vietnam, to hit all-time highs. The company also expects to report a new all-time record for earnings per share.

Further, Apple plans to cut production for its three new iPhone models by about 10% for the March quarter, according to the reports of the Nikkei Asian Review. Overall planned production volume of both old and new iPhones is expected to be lowered to about 40-43 million units for the January-March quarter from the earlier projection of 47-48 million units (read: Is Falling iPhones Demand an Entry Point to Apple ETFs?).

ETFs in Focus

Given this, ETFs having the highest allocation to this tech titan will be in focus going into its earnings announcement. While there are several ETFs in the space with Apple in their top 10 holdings, we have highlighted the ones that have Apple as the top or the second firm with a double-digit allocation (see: all the Technology ETFs here):

Select Sector SPDR Technology ETF XLK – The fund has AUM of $18.1 billion and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Apple makes up for 15.6% of assets.

iShares Dow Jones US Technology ETF IYW – The fund has amassed $3.6 billion in its asset base and carries a Zacks ETF Rank #1 with a Medium risk outlook. Apple accounts for 13.7% of the assets (read: Top-Ranked Sector ETFs & Stocks to Buy for 2019).

Vanguard Information Technology ETF VGT – It has AUM of $17.3 billion and sports a Zacks ETF Rank #1 with a Medium risk outlook. Here, AAPL takes 15.2% share.

MSCI Information Technology Index ETF FTEC – This fund has a Zacks ETF Rank #1 with a Medium risk outlook and has AUM of $1.9 billion. Apple has 14.2% allocation.

iShares Global Tech ETF IXN - The product has accumulated $2.4 billion in its asset base. Apple accounts for 12.3% allocation.

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