Tech ETFs to Benefit Most on Apple's Earnings Beat

Technology giant Apple (AAPL) reported blockbuster fourth quarter fiscal 2014 results after the closing bell on Monday courtesy of iPhone sales. The company beat on both the top and bottom lines, and sees a strong fourth quarter with the upcoming holiday season (read: Can a Great Holiday Season Rally These Retail ETFs?).

Apple Results in Focus

Earnings per share came in at $1.42, which comfortably surpassed the Zacks Consensus Estimate of $1.30 and improved from the year-ago earnings of $1.18. Apple has now beaten earnings expectations for five quarters in a row.

Revenues rose 12% year over year to $42.1 billion, and were well ahead of our estimate of $39.96 billion. This represents the largest growth in seven quarters. Gross margin was 38%, up from 37% in the year-ago quarter and at the upper end of the company’s guidance of 37–38%.

Apple sold 39.3 million iPhones, up 12% from the year-ago quarter and easily crushed the market expectation of of 38 million. Meanwhile, sales for Mac desktop computers grew 21% to 5.5 million buoyed by a stronger-than-expected back-to-school season. With this, the company now has the largest share of the PC market since 1995 (read: Big Screen Apple iPhones See Record Sale: 3 Tech ETFs to Buy).

However, iPad sales fell for the third consecutive quarter by 13% to 12.3 million and marked the smallest number of iPad sales in more than two years. This was the only major disappointment in the reported quarter.

The ubiquitous gadget-maker sees revenues in the range of $63.5–$66.5 billion for the current quarter; the upper end of which is higher the Zacks Consensus Estimate of $64.4 billion. Further, Apple expects gross margin in the range of 37.5–38.5% for the first quarter of fiscal 2015.

Apple is poised to benefit from a robust product lineup including the newly launched iPhone 6 and iPhone 6 Plus, a wearable gadget called Apple Watch, and the new mobile digital payment system - Apple Pay – which was launched yesterday. These are likely to drive its holiday revenues higher.

Market Impact

The shares of APPL gained as much as 2% in after-market hours on elevated volumes of two times than the normal trade. Further, the stock has a Zacks Rank #2 (Buy) and its industry also has a top Zacks Rank (in the top 3%) as per the Zacks Industry Rank.

ETFs to Consider

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 three ETFs having double-digit exposure to Apple and could be great plays to tap into the same trend with low risk given these products have a Zacks ETF Rank of 1 or ‘Strong Buy’ rating (see: all the Technology ETFs here):

iShares Dow Jones US Technology ETF (IYW)

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 146 stocks in its basket with AUM of $3.9 billion while charging 43 bps in fees and expense. Volume is moderate as it exchanges nearly 439,000 shares in hand a day.

Apple occupies the top position in the basket with 18.54% of assets. The product is heavily skewed toward the technology hardware and equipment segments, as these make up for half of the portfolio. Software and computer services take the remaining portion in the basket. The fund has added nearly 8% in the year-to-date time frame.

Select Sector SPDR Technology ETF (XLK)

The most popular technology ETF XLK follows the S&P Technology Select Sector Index and has $12.1 billion in AUM. This fund trades in heavy volume of roughly 7.6 million shares and charges 16 bps in fees per year from investors. In total, the fund holds about 71 securities in its basket. Of these firms, AAPL takes the top spot, making up roughly 16.19% of the assets.

In terms of industrial exposure, the fund is widely spread across hardware storage & peripherals, software, IT services, Internet software & services and diversified telecom services that make up for double-digit allocation. The fund is up over 6.7% year to date (read: 3 Apple ETFs for Outperformance).

Vanguard Information Technology ETF (VGT)

This fund manages about $5.6 billion in asset base and provides exposure to a large basket of 410 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.14% in expense ratio while volume is moderate at nearly 321,000 shares.

Again here, AAPL is the top firm with 14.8% allocation. From a sector perspective, technology hardware & storage take the largest share at 20.2%, closely followed by Internet software & services (17.70%) and systems software (13.90%). VGT has added 5.1% year to date.

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