Apple Tastes Bitter Ahead Of Q2 Earnings: Tech ETFs To Watch

Technology giant Apple (NASDAQ:AAPL) is set to release second-quarter fiscal 2018 results on May 1 after market close. Since Apple accounts for over 19% of the total market capitalization of the entire technology sector in the S&P 500 index, it is worth taking a look at the company’s fundamentals ahead of its results.

After the excellent surge at the start of the year, Apple has been the victim of a broad tech rout, losing 4.1%. This is wider than the industry’s loss of 3.8%. The underperformance is expected to continue given that Apple has an unfavorable Zacks Rank and earnings estimate revision trend ahead of its Q2 report (read: Tech ETFs to Buy After Massive Selloff).



Inside Our Methodology

Apple has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.23%. According to our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP raises the possibility of a beat. A Zacks Rank #4 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.

This is what we have seen for Apple. The company has seen its earnings estimates go down from $2.71 to $2.69 for the fiscal second quarter over the past 30 days. Analysts decreasing estimates right before earnings — with the most up-to-date information possible — does not bode well.

However, the Zacks Consensus Estimate represents substantial year-over-year growth of 28.1%. Additionally, the earnings track record is respectable, with an average earnings surprise of 5.72% for the last four quarters. Though AAPL boasts a solid Value Score of B, its Growth and Momentum Score of C and F, respectively, look disappointing. The stock belongs to the bottom-ranked Zacks Industry (bottom 15%).

According to the analysts polled by Zacks, Apple has an average target price of $192.70 with less than half of the analysts having a Strong Buy or a Buy rating ahead of its earnings. This indicates an 18.7% upside to the current price of AAPL (read: Top Performing Tech ETFs of 2018).

What to Watch?

Investors will continue to focus on iPhone sales, which were disappointing in the first quarter, as iPhone unit sales estimates have been steadily going down since late last year on perceptions of weakness in Apple’s supply chain.

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 five technology funds that have Apple as their top firm (see: all the Technology ETFs here):

iShares Dow Jones US Technology ETF IYW – The fund is up 4.1% since the start of the year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. Apple makes up for 15.7% of the assets.

Select Sector SPDR Technology ETF XLK – The fund has added 3.3% in the same time frame and has a Zacks ETF Rank #2 with a Medium risk outlook. Apple accounts for 13.7% share (read: 5 Tech ETFs in Green Despite One-Month Turmoil).

Vanguard Information Technology ETF (HN:VGT) – It has gained about 4.4% and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. Here, AAPL takes 13.2% share.

MSCI Information Technology Index ETF (V:FTEC) – This fund has a Zacks ETF Rank #2 with a Medium risk outlook and has gained 4.5%. Apple has 12.7% allocation.

iShares Edge MSCI Multifactor Technology ETF (KL:TCHF) - The product is up 2.9% so far this year and has a Zacks ETF Rank #2. Apple accounts for 12.5% allocation.

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Apple Inc. (AAPL): Free Stock Analysis Report

SPDR-TECH SELS (XLK): ETF Research Reports

FID-INFOTEC (FTEC): ETF Research Reports

ISHRS-EMS M TEC (TCHF): ETF Research Reports

VIPERS-INFO TEC (VGT): ETF Research Reports

ISHARS-US TECH (IYW): ETF Research Reports

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