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Should You Buy Apple ETFs Ahead of Q2 Earnings?

Sweta Killa

Technology giant Apple AAPL is set to release second-quarter fiscal 2019 results on Apr 30 after market close. Since Apple accounts for more than 19% of the 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 30% over the past three months, outperforming the Nasdaq Composite Index’s gain of 13.3%. 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 +0.14%, indicating reasonable chances of it beating estimates this quarter. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Apple saw no earnings estimate revision over the past 30 days for the fiscal second quarter. The company has a strong track record of positive earnings surprise. It delivered average positive earnings surprise of 3.47% in the trailing four quarters. However, the company is expected to post earnings decline of 13.2% and revenue decline of 5.9% in the fiscal second quarter (read: What's in the Cards for FAANG ETFs This Earnings Season?).

Though AAPL has a VGM Score of D, the stock belongs to a top-ranked Zacks Industry (top 4%).

According to the analysts polled by Zacks, Apple has an average target price of $205.77 with nearly 54% of the analysts having a Strong Buy or a Buy rating ahead of its earnings.

What to Watch?

Apple iPhone sales are expected to continue to decline. Wall Street is expecting iPhone revenues to come in 17% below the year-ago quarter and worse than the 14% fall in the previous quarter. However, Apple is now no more a single-product iPhone company as it is now focusing on the bunch of services. In fact, management touted its Services offerings as a new growth driver amid lagging device demand and reiterated that it is on track to achieve the goal of doubling Services revenues from 2016 to 2020. The gadget-maker foresees total revenues in the range of $55-$59 billion for the second quarter of fiscal 2019.

Additionally, the iPhone maker hosted a product event late last month, where it revealed its biggest push into streaming video, Apple TV Plus, which is slated to launch this fall. Apple TV Plus is the new home to the world’s most creative storytellers featuring exclusive original shows, movies and documentaries. It will feature a brand new slate of programming from the world’s most-celebrated creative artists, including Oprah Winfrey, Steven Spielberg, Jennifer Aniston, Reese Witherspoon, Octavia Spencer, J.J. Abrams, Jason Momoa, M. Night Shyamalan, Jon M. Chu and more (see: all the Technology ETFs here).

The company also announced the expansion of its Apple Pay program with the addition of the Apple Card and deepen its foray into mobile gaming with Apple Arcade. These will be available later this year.

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 among their top 10 holdings, we have highlighted the ones that have Apple as the top or the second firm with a double-digit allocation:

Select Sector SPDR Technology ETF XLK – The fund has AUM of $21 billion and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook. Apple makes up for 17.2% of the assets (read: Technology ETF Hits New 52-Week High).

iShares U.S. Technology ETF IYW – The fund has amassed $4.3 billion in its asset base and carries a Zacks ETF Rank #2 with a Medium risk outlook. Apple accounts for 14.9% of the assets.

Vanguard Information Technology ETF VGT – It has AUM of $21.1 billion and sports a Zacks ETF Rank #1 with a Medium risk outlook. Here, AAPL takes 15.1% share (read: U.S. Manufacturing Sector Grows in March: ETF & Stock Picks).

MSCI Information Technology Index ETF FTEC – This fund has a Zacks ETF Rank #1 with a Medium risk outlook and has AUM of $2.4 billion. Apple has 15.3% allocation.

iShares Global Tech ETF IXN - The product has accumulated $2.6 billion in its asset base. Apple accounts for 13.6% allocation.

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