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Should You Invest in Apple ETFs Following Buffett?
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An apple a day might keep the doctor away. But it remains to be seen whether owning Apple Inc. ((AAPL - Free Report) ) shares right now will keep you away from risks.
The tech giant is harried by slowing sales of its prime offering iPhone. While troubles started from last year, the first two quarters of the current fiscal year were particularly disappointing. Q1 saw mixed results with the slowest-ever sales for iPhone and in Q2, the company reported its first quarterly revenue drop in 13 years and the first-ever decline in iPhone sales (read: Apple's Explosive Growth Era Ending? ETFs to Watch).
The stock lost about 3.2% in the last one year (as of August 18, 2016) and has added just over 3.6% in the year-to-date frame. However, with this trend, the Apple stock got a changed tag from growth to value (read: Tech ETFs in Trouble Post Rotten Q2 Apple Results).
Buffett Loves Apple; Should You?
What can be a better proof of Apple’s value stock status than Warren Buffett’s fondness for it? Warren Buffett’s Berkshire Hathaway (BRK.B) recently disclosed that it has raised its holdings in Apple by 55%.
Berkshire held 15.23 million Apple shares worth $1.46 billion as of June 30, up from 9.81 million shares as of March 31. WithWarren Buffett being a strong advocate of value investing, hardly anybody will now question the value latent in the Apple stock.
Plus, things started to recover lately with over 9% gains realized in the last one month. This is because shares of Apple jumped about 6% on better-than-expected fiscal third-quarter results reported in July end. However, earnings and revenues declined on a year-over-year basis. The number of iPhone units shipped was more than expected but the price was lower than average(read: 3 Tech ETFs to Buy on Apple's Impressive Q3 Earnings Results).
What Do Indicators Say About Apple’s Value Status?
Going by valuation metrics, P/E (ttm) of AAPL is 12.8 times versus the industry-average of 13 times. Forward P/E of AAPL is 13.2 times versus industry score of 13.5 times. Apple has an EV/EBITDA of 8.2, which is above the 5.9 times industry-average. Investors should note that EV/EBITDA ratio values the ‘worth of the entire company’ and thus indicates Apple’s still-higher worth compared to its industry peers.
Return-on-equity of Apple is 37.9%, again higher than industry average of 29.8%. Plus, both return-on-assets and return-on-capital of Apple are higher than the industry measures. Estimated 3–5 year EPS growth of Apple is now 8.7% versus 7.7% of the industry measure. Dividend yield of Apple is 2.09% while the broader tech ETF Technology Select Sector SPDR ETF (XLK - Free Report) has a dividend yield of 1.76%.
All the above-said numbers explain why Buffett is beefing up Apple shares in his portfolio. Investors should note that the AAPL stock has a Zacks Rank #3 (Hold). It has a great Zacks Style Value score of “B” at the time of writing with Value score of ‘A’ and growth score of ‘C’.
If There is a Threat…
Retailer Target Corp. (TGT - Free Report) recently reported second-quarter 2016 results wherein revenues missed the Zacks Consensus Estimate and declined over 7% year over year. Weakness in electronics sales, especially an over 20% decline in Apple product sales, was held responsible by management for this sluggish performance.
The AAPL stock resides in the bottom 13% of the Zacks Industry Rank. Apple shares currently have a P/B 4.7x, which is a 67.9% premium to the industry average. Its price-to-sales ratio stands at 2.7x, reflecting a 50% premium to the industry average. Also, its iPhone sales dropped 33% year over year in China in Q3 and 11% U.S.
Hopes Ahead?
iPhone 7, which is slated for launch this September, could boost Apple’s revenues. Analysts also noted that this scheduled launch may have kept investors in the waiting queue in Q3 as most of them are eyeing the new product and did not buy existing ones.
So, all in all, though Apples shares have entered the value zone, there is still ample room for improvement. It needs to be seen whether sales will improve (and by how much) in China going forward. In fact, Apple’s exposure in China has been a key concern for billionaire activist investor Carl Icahn, which was a long-time believer in Apple’s fair valuation, but finally exited the stock (read: What to Do With Apple ETFs After Icahn Has Left?).
Are ETFs Better Bet?
Thus, investors intending to follow Warren Buffett but still wary of the lingering issues in Apple can consider the tech behemoth via the ETF or basket approach. This is because the ETF route helps investors to mitigate one company’s average performance with the other companies’ stellar results. Below we highlight a few ETFs with heavy exposure to Apple for investors seeking to bet on the stock with much lower risk.
iShares Dow Jones US Technology ETF (IYW - Free Report) – APPL at the helm with 16.03% weight
Select Sector SPDR Technology ETF (XLK - Free Report) – APPL holds the top spot with 13.4% weight
Vanguard Information Technology ETF (VGT - Free Report) – APPL occupies the first location with 12.6% weight
IYW, XLK and VGT have added about 8.8%, 9.7% and 8.5%, respectively, in the year-to-date frame (as of August 18, 2016).
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Should You Invest in Apple ETFs Following Buffett?
An apple a day might keep the doctor away. But it remains to be seen whether owning Apple Inc. ((AAPL - Free Report) ) shares right now will keep you away from risks.
The tech giant is harried by slowing sales of its prime offering iPhone. While troubles started from last year, the first two quarters of the current fiscal year were particularly disappointing. Q1 saw mixed results with the slowest-ever sales for iPhone and in Q2, the company reported its first quarterly revenue drop in 13 years and the first-ever decline in iPhone sales (read: Apple's Explosive Growth Era Ending? ETFs to Watch).
The stock lost about 3.2% in the last one year (as of August 18, 2016) and has added just over 3.6% in the year-to-date frame. However, with this trend, the Apple stock got a changed tag from growth to value (read: Tech ETFs in Trouble Post Rotten Q2 Apple Results).
Buffett Loves Apple; Should You?
What can be a better proof of Apple’s value stock status than Warren Buffett’s fondness for it? Warren Buffett’s Berkshire Hathaway (BRK.B) recently disclosed that it has raised its holdings in Apple by 55%.
Berkshire held 15.23 million Apple shares worth $1.46 billion as of June 30, up from 9.81 million shares as of March 31. WithWarren Buffett being a strong advocate of value investing, hardly anybody will now question the value latent in the Apple stock.
Plus, things started to recover lately with over 9% gains realized in the last one month. This is because shares of Apple jumped about 6% on better-than-expected fiscal third-quarter results reported in July end. However, earnings and revenues declined on a year-over-year basis. The number of iPhone units shipped was more than expected but the price was lower than average(read: 3 Tech ETFs to Buy on Apple's Impressive Q3 Earnings Results).
What Do Indicators Say About Apple’s Value Status?
Going by valuation metrics, P/E (ttm) of AAPL is 12.8 times versus the industry-average of 13 times. Forward P/E of AAPL is 13.2 times versus industry score of 13.5 times. Apple has an EV/EBITDA of 8.2, which is above the 5.9 times industry-average. Investors should note that EV/EBITDA ratio values the ‘worth of the entire company’ and thus indicates Apple’s still-higher worth compared to its industry peers.
Return-on-equity of Apple is 37.9%, again higher than industry average of 29.8%. Plus, both return-on-assets and return-on-capital of Apple are higher than the industry measures. Estimated 3–5 year EPS growth of Apple is now 8.7% versus 7.7% of the industry measure. Dividend yield of Apple is 2.09% while the broader tech ETF Technology Select Sector SPDR ETF (XLK - Free Report) has a dividend yield of 1.76%.
All the above-said numbers explain why Buffett is beefing up Apple shares in his portfolio. Investors should note that the AAPL stock has a Zacks Rank #3 (Hold). It has a great Zacks Style Value score of “B” at the time of writing with Value score of ‘A’ and growth score of ‘C’.
If There is a Threat…
Retailer Target Corp. (TGT - Free Report) recently reported second-quarter 2016 results wherein revenues missed the Zacks Consensus Estimate and declined over 7% year over year. Weakness in electronics sales, especially an over 20% decline in Apple product sales, was held responsible by management for this sluggish performance.
The AAPL stock resides in the bottom 13% of the Zacks Industry Rank. Apple shares currently have a P/B 4.7x, which is a 67.9% premium to the industry average. Its price-to-sales ratio stands at 2.7x, reflecting a 50% premium to the industry average. Also, its iPhone sales dropped 33% year over year in China in Q3 and 11% U.S.
Hopes Ahead?
iPhone 7, which is slated for launch this September, could boost Apple’s revenues. Analysts also noted that this scheduled launch may have kept investors in the waiting queue in Q3 as most of them are eyeing the new product and did not buy existing ones.
So, all in all, though Apples shares have entered the value zone, there is still ample room for improvement. It needs to be seen whether sales will improve (and by how much) in China going forward. In fact, Apple’s exposure in China has been a key concern for billionaire activist investor Carl Icahn, which was a long-time believer in Apple’s fair valuation, but finally exited the stock (read: What to Do With Apple ETFs After Icahn Has Left?).
Are ETFs Better Bet?
Thus, investors intending to follow Warren Buffett but still wary of the lingering issues in Apple can consider the tech behemoth via the ETF or basket approach. This is because the ETF route helps investors to mitigate one company’s average performance with the other companies’ stellar results. Below we highlight a few ETFs with heavy exposure to Apple for investors seeking to bet on the stock with much lower risk.
iShares Dow Jones US Technology ETF (IYW - Free Report) – APPL at the helm with 16.03% weight
Select Sector SPDR Technology ETF (XLK - Free Report) – APPL holds the top spot with 13.4% weight
Vanguard Information Technology ETF (VGT - Free Report) – APPL occupies the first location with 12.6% weight
IYW, XLK and VGT have added about 8.8%, 9.7% and 8.5%, respectively, in the year-to-date frame (as of August 18, 2016).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>