An apple a day might keep the doctor away, but owning Apple Inc. (AAPL) shares right now may not keep risks away. First, the company came up with a weak revenue outlook and lower-than-expected iPhone sales in its Q3 earnings release in late July, and then the tech icon was foreseen as an underperformer due to the recent Chinese economic setback. Notably, China is seemingly the largest market for Apple’s further expansion.
Apple iPad growth has decelerated a long way thanks to rising competition from other makers. In fact, iPad sales fell for six successive quarters on a year-over-year basis. As a result, the stock underwent a steep sell-off, having retreated for five consecutive days through the August 4 session. Over the last five days, the stock was off 8%.
On August 4, 2015 itself, Apple shed over 3.2% to $114.64 while it lost 0.73% after hours. Since reporting Q2 earnings, the stock was down over 12% (as of August 4). The current plunge in prices has eaten away around $100 billion of Apple's market cap (read: ETFs in Spotlight after Apple and Microsoft Earnings).
The Apple stock is currently hovering in the middle of its 52-week range and its outlook appears a little murky as the stock breaks the 200-day (long-term), 50-day (intermediate-term) and 9-day (short-term) moving averages on its way down. The current price of AAPL is trading below the parabolic SAR indicating a bearish trend for the product.
3 Reasons Why Apple is Still a Buy
More Positive Estimate Revisions: Apple looks to be a victim of lofty expectations. Of course, some cracks have lately been spotted on its rock-solid fundamentals, but its basics are still strong and analysts still value it (read: Believe in Icahn? Bet on These Apple ETFs).
Despite offhand sentiments post-earnings, the stock saw upward revisions in Q3 earnings estimates from 52.6% analysts covering it while 10.5% analysts cut the same over the last 30 days. About 65.2% analysts raised Apple’s full-year estimates while 13% analysts reduced theirs in the last one month.
A Few Bullish Technical Cues: While a one school of technical analysis hints at a bearish trend, another school speaks of a possible trend reversal. The stock’s intermediate-term moving average is well above the long-term average as depicted in the chart above. This suggests mid-term bullishness in the product.
The stock is trading at a Relative Strength Index (RSI) value of 26.55 indicating that it has entered into an oversold territory and that there is high chance of a price recovery once the investors’ jitters subside.
Bullish Ranks & Metrics: Apple has a Zacks Rank #2 (Buy) and Growth & Value style scores of ‘A’. Despite a steep correction, it has a moderate Momentum style score of ‘C’ at the time of writing. Apple’s projected sales growth for the full year is 27.02%, way above the industry average of 16.33%.
The tech behemoth boasts return on equity of 41.46%, almost double the industry average of 24.04%. The company is cash rich too as its cash flow per share ratio stands at 8.09 versus the industry average of 3.82.
Are ETFs Better Bet?
Still, investors wary of the recent pricing crash can consider Apple 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 three Buy-rated ETFs with heavy exposure to this tech giant for investors seeking to bet on the stock with much lower risk.
iShares Dow Jones US Technology ETF (IYW)
The fund holds 137 stocks in its basket with AUM of $2.8 billion while charging 45 bps in fees and expenses. Volume is solid as it exchanges nearly 300,000 shares in hand a day. Apple occupies the top position in the basket with 19.55% of assets. The fund has added nearly 1% in the year-to-date timeframe (as of August 4, 2015) and has a Zacks ETF Rank #2 (Buy) (read: Play Mobile Payments & Big Data with 2 New ETFs).
Select Sector SPDR Technology ETF (XLK)
The most popular technology ETF XLK has $12.9 billion in AUM and trades in heavy volume of roughly 8 million shares. It charges 15 bps in fees per year from investors. AAPL takes the top spot in its 73-stock portfolio, making up 16.14% of the assets. The fund has returned 1.8% year to date and has a Zacks ETF Rank #1 (Strong Buy) (see: all the Technology ETFs here).
Vanguard Information Technology ETF (VGT)
This $7.7 billion fund provides exposure to a large basket of 392 technology stocks with Apple having the highest exposure (16.9% allocation). The ETF has 0.12% in expense ratio while volume is moderate at nearly 270,000 shares. VGT is up over 2.7% so far this year and has a Zacks ETF Rank #2.
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