After the closing bell on Tuesday, Apple Inc. (AAPL - Analyst Report) infused further optimism in the technology sector with record fourth-quarter fiscal 2015 results. The technology giant beat on earnings and revenues driven by surging sales in China and provided an upbeat outlook for the holiday quarter.
This has kept alive the strong momentum in the technology sector seen in the past few days owing to a string of better-than-expected results from the three heavy weights – Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN). As per the Zacks Earnings Trend, the technology sector has held up well in this weak Q3 earnings season as total earnings for 65.6% of the sector that has reported so far are up 9.2% on 5.3% higher revenues, with earnings and revenue beat ratio of 68.8% and 62.5%, respectively (see: all the Technology ETFs here).
Apple Results in Focus
Earnings per share came in at $1.96, which comfortably surpassed the Zacks Consensus Estimate of $1.88 and improved from the year-ago earnings of $1.42. Apple has now surpassed earnings expectations for 10 quarters in a row. Revenues climbed 22% year over year to $51.5 billion, and were well ahead of our estimate of $50.9 billion.
Robust results were primarily credited to higher demand for iPhone sales, especially in China, as well as an all-time record in Mac sales. Notably, sales in China almost doubled to $12.5 billion from the year-ago quarter amid the slowdown in the economy and accounted for nearly one-fourth of the total quarterly revenue. Gross margin was 39.9%, up from 38% in the year-ago quarter and ahead of the company’s own guidance of 38.5–39.5%.
Sales of iPhone surged 22% year over year to 48.04 million and accounted for 63% of total revenue. Though the company missed the analysts’ expectation of 48.72 million iPhones, it logged record fourth-quarter sales. Meanwhile, sales for Mac desktop computers grew 3% year over year to another record 5.71 million. However, iPad sales continued to disappoint, falling 20% to 9.88 million, a level not seen in over four years (read: ETFs to Buy on Blockbuster Apple 3D Touch iPhones Sales).
The ubiquitous gadget-maker foresees revenues in the range of $75.5–$77.5 billion for the current holiday quarter; the midpoint is above the current Zacks Consensus Estimate of $76.26 billion. Most of the revenue growth would come from higher demand for the latest iPhone models – the 6S and 6S Plus – as a large numbers of people are either switching from phones made by rivals or upgrading their older models. Further, Apple expects gross margin in the range of 39–40% for the first quarter of fiscal 2016.
Following the earnings announcement, shares of AAPL initially rose 3% in after-market hours but pulled back to close at down 0.1%. In the pre-market session today, the stock is up over 2% at the time of writing. Apple currently has a Zacks Rank #3 (Hold) with a triple play aspect. It has a Growth and Value style scores of ‘A’ each while Momentum score is ‘B’. This suggests that Apple has the potential to grow in the coming months.
ETFs in Focus
Given this, several ETFs having the largest allocation to this tech titan are poised to outperform in the coming days and investors shouldn’t miss the opportunity arising from any surge in the stock price. For those interested, we have highlighted four ETFs having double-digit exposure to Apple that could be great ways to tap the same trend with low risk:
iShares Dow Jones US Technology ETF ((IYW - ETF report))
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the 147 technology stocks. The fund has AUM of $2.7 billion while charging 43 bps in fees and expenses. Volume is good as it exchanges nearly 275,000 shares in hand a day. Apple occupies the top position in the basket with 18.1% of assets. About half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 32.6% share. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Apple ETFs: Value Trap or Value Play?).
Select Sector SPDR Technology ETF ((XLK - ETF report))
This most popular technology ETF follows the Technology Select Sector Index and has more than $12.6 billion in AUM. This fund trades in heavy volume of roughly 10 million shares and charges 14 bps in fees per year from investors. In total, the fund holds about 76 securities in its basket. Of these firms, AAPL takes the top spot, making up roughly 16.3% of the assets. In terms of industrial exposure, the fund is widely spread across hardware storage & peripherals, software, Internet software & services, IT services, semiconductors, and diversified telecom services that make up for a double-digit allocation each. It has a Zacks ETF Rank of 2 with a Medium risk outlook.
Vanguard Information Technology ETF ((VGT - ETF report))
This fund manages about $7.9 billion in its asset base and provides exposure to a large basket of 382 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 good at nearly 313,000 shares. Here again, AAPL is the top firm with 15.5% allocation. The product is well spread out across a number of sectors with hardware & storage, Internet software & services, system software, data processing & outsourced services, and semiconductors each accounting for a double-digit allocation. It has a Zacks ETF Rank of 2 with a Medium risk outlook (read: 3 Promising Tech ETFs Jumping to Rank #2 from 4).
MSCI Information Technology Index ETF ((FTEC - ETF report))
This fund provides exposure to a large basket of 397 technology stocks with AUM of $344 million. This is done by tracking the MSCI USA IMI Information Technology Index. Here too, AAPL is the top firm with 14.7% allocation. From a sector perspective, the product is widely diversified across software, Internet software & services, technology hardware storage & peripherals, IT Services, and semiconductors & semiconductor equipment with double-digit exposure each. The ETF has 0.12% in expense ratio while volume is good at 163,000 shares a day. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
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