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Why You Should Believe in Buffett & Bet on These Apple ETFs

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Apple (AAPL)is poised to get its sweetness back on billionaire investor Warren Buffett’s backing and strong second-quarter fiscal 2018 results. Shares of the iPhone maker were beaten down in the recent past thanks to the news of slowing sales of iPhones.

But Warren Buffett’s comments that “I like Apple stock so much [that] 'I'd love to own 100 percent' did wonders for the tech giant. He recently bought 75 million additional Apple shares, thus owning about 5% of the company and becoming its third largest shareholder — following Vanguard Group and BlackRock Inc.

Apple rallied on Buffett’s optimistic comments and gained more than 4.6% in the last two days (as of May 7, 2018).

So far this year (as of May 7, 2018), Apple jumped 10.7% compared with 7.3% gains recorded by the computer-office equipment market. Apple (11.6%) has simply breezed past the computer-office equipment market (up 5%) so far this quarter. In fact, this month, the stock is up 13.4% versus the 7% advancement logged by the industry it hails from.


Inside Upbeat Earnings & Outlook

Earnings per share came in at $2.73, beating the Zacks Consensus Estimate by four cents and improving 30% from the year-ago earnings. Revenues grew 16% year over year, the fastest growth in more than two years, to $61.1 billion and edged past the estimate of $61 billion.

A 14% increase in iPhone revenues and a 31% increase in revenues from the service unit, which includes App Store, AppleCare, Apple Pay and Apple Music, led to the impressive result (read: ETFs to Buy Post Apple's Strong Q2 Result).

The gadget-maker expects revenues in the range of $51.5-$53.5 billion for the third quarter of fiscal 2018, which is much above the current Zacks Consensus Estimate of $51.33 billion.

Shareholder Value Maximization

It announced an additional massive share buyback program to the tune of $100 million on top of the existing $210 billion to be completed during the fiscal third quarter and boosted its quarterly dividend by 16% to 73 cents.

What Do Indicators Say About Apple’s Value Status?

Going by valuation metrics, P/E (ttm) of AAPL is 17.7 times versus the industry-average of 17.0 times. Forward P/E of AAPL is 16.1 times versus industry score of 14.8 times. Though these measures point to higher valuation of Apple than the industry, a higher P/E is always not a sign of worry. It shows investors’ confidence in a particular stock among the bunch.

Investor should note that return-on-equity of Apple is 40%, higher than industry average of 30.3%. Plus, both return-on-assets and return-on-capital of Apple are higher than the industry measures. The estimated 3-5 year EPS growth of Apple is now 11.8% versus 9.3% of the industry measure.

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 Value Score of B at the time of writing with a Momentum Score of A.

Are ETFs Better Bet?

Thus, investors intending to follow Warren Buffett but still wary of the somewhat slowing sales of iPhones (the number of which missed our consensus estimate in Q2) may take the ETF route. This is because ETFs 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 is at the helm with 17.29% weight. The fund has a Zacks Rank #2 (Buy).

Select Sector SPDR Technology ETF (XLK - Free Report) – APPL holds the top spot with 14.98% weight. The fund has a Zacks Rank #2 (read: ETFs With Heavy Microsoft Exposure to Fly Post Q3 Results).

Vanguard Information Technology ETF (VGT - Free Report) – APPL occupies the first location with 13.2% weight.

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