The broad tech sector turmoil as well as negative news flow has taken a toll on Apple shares lately. In fact, the stock is down nearly 20% from its recent peak, indicating that it has entered into the bear market. With this, Apple’s value has dropped to about $886 billion from the October highs of $1.13 trillion (read: Apple Woes Trigger Tech Sector Rout: ETFs Under Threat).
The decline stemmed from investors’ concerns that Apple, renowned for years of innovative technology, will suffer declines in iPhone unit sales over the next couple of years. This is especially true as many Wall Street analysts lowered their iPhone sales estimates following reports of production cuts by Apple’s supply chain partners. Apple plans to buy fewer parts from Lumentum Holdings LITE and Qorvo QRVO, implying that it will sell fewer iPhones going forward than initially expected.
In particular, Guggenheim Securities stated that increased average selling prices won’t be enough to offset slowing iPhone demand and lowered its rating on the stock to neutral from buy. It also removed its prior price target of 245 on the stock. Meanwhile, Goldman Sachs cut its iPhone sales estimate for Apple’s fiscal 2019 by 5.5% and trimmed his price target on the stock to 209 from 240, while reiterating the neutral rating. UBS has also cut its price target for Apple and blamed lower phone sales expectations for a dimmer outlook.
Further, on its earnings call, Apple said that the company will no longer break out individual sales numbers for iPhone, iPad and Mac starting next quarter. The three main product lines will be wrapped into one reported revenue figure. This has spread negative sentiments about the company’s growth prospects and that its largest segment by revenue may be set for weaker growth.
However, per a Reuters‘ article, several prominent investors put fresh money into Apple during the third quarter anticipating that the iPhone maker’s stock would keep rising as strong growth overshadowed rising trade tensions between the United States and China. Mutual fund giant Fidelity added 7 million shares, bringing its total holdings to 110.9 million shares, regulatory filings and data from research firm Symmetric.io show. Janus Henderson Group added 3.3 million shares for a total of 20.8 million shares and J.P. Morgan Chase & Co boosted its holding to 42.7 million shares after adding 1.3 million (read: Apple Beats, Guides Lower: ETFs in Focus).
Philippe Laffont’s Coatue Management made a big bet by raising his exposure by 938% to 884,321 shares, while Chase Coleman’s Tiger Global Management put on a new position to own over 1 million shares.
Solid Estimates Trend
Apple has seen rising earnings estimate revisions from $13.24 to $13.35 per share for fiscal year 2019 over the past 30 days. This represents substantial year-over-year growth of 12.09%. Revenues are expected to grow 4.95%.
The stock is currently trading at a PEG ratio of 1.38, much lower than the industry average of 1.75, suggesting that it is a better value stock in the industry. The lower the PEG ratio, the better the value as investors would be paying less for each unit of earnings growth. Additionally, Apple is cheap with P/E ratio of 14.40 compared with 15.77 for the industry.
Further, Apple currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A. It belongs to a top-ranked Zacks industry (top 24%) at the time of writing, suggesting strong upside for the stock over the coming days (see: all the Technology ETFs here).
ETFs to Tap
Given the strong fundamentals, investors seeking to tap the beaten-down tech titan could consider the following ETFs. These funds have Apple as their top firm with a double-digit allocation.
Select Sector SPDR Technology ETF XLK
This most-popular technology ETF has $19.2 billion in AUM and charges 13 bps in fees per year from investors. AAPL makes up for roughly 19% of assets. It has a Zacks Rank #1 (Strong Buy) with a Medium risk outlook.
iShares Dow Jones US Technology ETF IYW
This ETF provides investors exposure to the broad technology stocks, with 16.7% allocation in Apple. The fund has AUM of $3.8 billion and charges 43 bps in fees and expenses. It has a Zacks Rank #1 with a Medium risk outlook (read: 4 Sector ETFs & Stocks for Bountiful Gains in November).
Vanguard Information Technology ETF VGT
This fund also targets the broad tech sector with 19.2% allocation in Apple. It has amassed $20 billion in its asset base while charges 10 bps in annual fees. VGT has a Zacks Rank #1 with a Medium risk outlook.
iShares Global Tech ETF IXN
This ETF provides global exposure to electronics, computer software and hardware, and informational technology companies, with Apple making up for 15.1% share in the basket. It has $2.6 billion in AUM and charges 47 bps in fees per year.
MSCI Information Technology Index ETF FTEC
With AUM of $2.2 billion, the product allocates 14.3% in Apple. The ETF has 0.08% in expense ratio and a Zacks Rank #1 with a Medium risk outlook.
iShares Morningstar Large-Cap ETF JKD
With AUM of $921.1 million, this product provides exposure to the large, established U.S. companies with Apple making up for 13% of assets. It charges 20 bps in fees per year and has a Zacks Rank #3 with a Medium risk outlook (read: Trump’s Tariff Threat to Hurt Apple: ETFs in Focus).
Invesco QQQ QQQ
This ETF provides exposure to the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization, with Apple accounting for 11.8% share in the basket. It has $64.3 billion in AUM and charges 20 bps in fees per year. The fund has a Zacks Rank #2 (Buy) with a Medium risk outlook.
The Technology Select Sector SPDR ETF (XLK) was trading at $67.26 per share on Thursday afternoon, up $0.61 (+0.92%). Year-to-date, XLK has gained 5.50%, versus a 1.48% rise in the benchmark S&P 500 index during the same period.
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