Technology giant Apple (AAPL - Free Report) reported its first quarter fiscal 2014 results after the bell yesterday. Though the company surpassed our estimates on the earnings front, lower-than-expected holiday iPhone sales and weak revenue guidance disappointed investors.
Apple Results in Focus
Earnings per share came in at $14.50, which comfortably surpassed the Zacks Consensus Estimate of $14.04 and improved from the year-ago earnings of $13.81. Revenues rose 5.7% year over year to $57.6 billion, but missed our estimate of $57.735 billion. Gross margin was 37.9%, higher than the company’s expectation of 36.5–37.5%.
Apple sold a record 51 million iPhones compared to 47.8 million in the year-ago quarter. However, the number fell short of the Wall Street estimate of 55 million iPhones. The company also sold a record 26 million iPads (read: 3 Apple-Focused ETFs to Buy This Holiday Season).
The ubiquitous gadget-maker sees revenues in the range of $42–$44 billion for the current quarter; the midpoint is lower than the Zacks Consensus Estimate of $46.03 billion and the Wall Street expectation of $46.1 billion. This was particularly surprising given that the company started selling iPhones 5S and 5C in China for the first time effective January 17.
Last month, the company reached a deal with the world's largest carrier, China Mobile (CHL), which is expected to provide access to over 700 million customers in the second-largest economy in the world. This deal will likely be a boon for the company’s top-line growth.
Further, Apple expects gross margin in the range of 37–38% for the second quarter (read: Best ETF Strategies for 2014).
Based on soft iPhone sales during the holiday shopping season and sluggish revenue guidance, Apple shares plunged more than 8% in after-market hours on heavy volume. This suggests rough trading for some of the ETFs having the largest allocation to this giant.
However, the stock has a Zacks Rank #2 (Buy), suggesting that the outlook for AAPL is not bad and that it still has room for upside. Given this, investors should closely monitor the movement in the technology-focused ETFs and could catch the opportunity from any dip in AAPL price.
Below, we have highlighted some of the ETFs having double-digit exposure to Apple and could be in focus in the coming days (see: all the Technology ETFs here):
ETFs to Watch
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 143 stocks in its basket with AUM of $3.1 billion while charging 45 bps in fees and expenses. Volume is moderate as it exchanges nearly 283,000 shares a day.
Apple occupies the top position in the basket with 16.91% of assets. The product is heavily skewed toward the technology hardware and equipment segments, as these make up for more than half of the portfolio. Software and computer services take the remaining portion in the basket.
The fund lost over 2% in the year-to-date time frame and has a Zacks ETF Rank of 2 or ‘Buy’ with a ‘High’ risk outlook.
Select Sector SPDR Technology ETF (XLK - Free Report)
The most popular technology ETF on the market, XLK follows the S&P Technology Select Sector Index. This fund manages over $13 billion in its asset base and trades in heavy volume of roughly 6.6 million shares a day. The ETF charges 18 bps in fees per year from investors (read: 3 Hot Sector ETFs for 2014).
In total, the fund holds about 73 securities in its basket. Of these firms, AAPL takes the first spot, making up roughly 14.42% of the assets. In terms of industrial exposure, the fund is widely spread across computer & peripherals, IT services, software, Internet software & services and diversified telecom services that make up for double-digit allocation.
The fund is down over 2.6% year-to-date. XLK currently has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘Medium’ risk outlook.
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages $4.6 billion in asset base and provides exposure to a large basket of 414 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.
Again here, AAPL is the top firm with 13.7% allocation. From a sector perspective, Internet software & services and computer hardware take the largest share with at least 16% each, closely followed by system software (13.50%), data processing & outsourced services (10.40%) and semiconductors (10.30%).
VGT lost 2.6% year-to-date and has a Zacks ETF Rank of 1 or ‘Strong Buy’ with a ‘Low’ risk outlook (see: all the Top Ranked ETFs).
Due to a heavy allocation to Apple, the three products could see choppy trading in the next few sessions. Investors should definitely cash in on any dip in the prices of these funds resulting from Apple results given that the trio has decent ranks and has the potential to outperform, or perform on par with the broad market, in the coming months.
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