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Apple at All-Time High, Poised for an Upbeat Q1: ETFs to Benefit

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Apple (AAPL - Free Report) has been on a tear, with a yearly return of 101% (versus 31.7% of the Nasdaq 100). The momentum is still pretty strong as the iPhone maker has advanced 15.3% in the past month versus a 6.8% uptick in the Nasdaq Composite. Decent growth prospects, solid holiday season sales and encouraging product launches are driving the stock higher.

Only one glitch for the stock — U.S.-China trade tensions — also seem to be passing by if the latest shipment data in China is to be believed. Apple shipped 3.2 million iPhones in China in December, according to CNBC calculations using data from the China Academy of Information and Communications Technology. That figure was up 18.5% from the year-ago month. The news sent Apple stock to an all-time high on Jan 9, 2019.

Expect Upbeat 1Q20 Earnings

Apple’s 1Q19 results suffered on subdued business from China. The tech giant reported revenue from China of $13.17 billion, down $5 billion from the same time period in 2018. But with Chinese sales improving, investors can expect a rebound in revenues from that country (read: After a Solid 2019, 5 China ETFs to Keep Rallying in 2020).

Apple also said its App Store customers spent $1.42 billion between Christmas Eve and New Year's Eve, up 16% from a year ago. Analysts are betting big on Apple's iPhone 11 sales as well as the 5G upgrade cycle ahead.J.P. Morgan expects Apple to unveil four handsets in September 2020, all 5G enabled.

Meanwhile, revenues from AirPods and Apple Watch as well as services will act as drawing cards. A survey conducted by Piper Jaffray showed that Apple was the “top-listed consumer brand for teens” in the last holiday season.

In any case, Apple wearables are seeing solid growth. Other research houses like Wedbush, Bernstein, Morgan Stanley and Barclays have also been betting big on Apple’s wearables segment. “Huge AirPod growth” also drove the company’s latest quarterly results (read: After a Sweet November, Apple ETFs are Set for a Warm December).

The company is to report its financial results on Jan 28. Apple has a Zacks Rank #2 (Buy) and an Earnings ESP of +0.67%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases chances of an earnings beat. The stock delivered an average positive earnings surprise of 3.64% in the trailing four quarters.

How to Play?

To tap the optimism, investors can play Apple-heavy ETFs as the basket approach reduces company-specific risks. Investors can also tap Apple’s suppliers which benefited from Apple’s outperformance.

Select Sector SPDR Technology ETF (XLK - Free Report)

AAPL occupies the first position and makes up for roughly 20% of assets (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).

Vanguard Information Technology ETF (VGT - Free Report)

This fund also targets the broad tech sector with Apple as the top firm holding 17.5%.

MSCI Information Technology Index ETF (FTEC - Free Report)

The product allocates 18.72% to Apple.

iShares Dow Jones US Technology ETF (IYW - Free Report)

Here, Apple is the second firm, accounting for 17.8% allocation.

Invesco QQQ (QQQ - Free Report)

Apple accounts for 11.73% share in the basket.

iShares MSCI Taiwan ETF (EWT - Free Report)

The fate of the pure-play Taiwan ETF is often related to Apple. This is because the fund puts heavy weights in Apple’s suppliers like TSMC (23.6% weight) and Hon Hai Precision (5.6% weight).

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