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Coronavirus to Hurt Apple Earnings: Time to Buy These ETFs?

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Apple’s (AAPL - Free Report) shares have been exhibiting one of its best rallies, having returned about 90% in the past year 21.6% gain in the S&P 500 and 36.2% advancement in the tech-heavy Invesco QQQ Trust (QQQ - Free Report) . Decent growth prospects and impressive product launches have been aiding this tech biggie.

However, management issued an earnings warning on Feb 17 stating that the company might not be able to meet its quarterly revenue expectations issued on Jan 28, 2020, hurt by the impact of coronavirus. The virus is likely to thwart the manufacturing of its iPhone and also hit demand in the Chinese market hard.

After an extended Chinese New Year holiday, factory activity is resuming in the country but at a slower pace than expected. This would cause disruptions in global iPhone supply. Despite Apple’s iPhone manufacturing partner sites being positioned outside the Hubei province — the epicentre of coronavirus — overall factory remains subdued.

Many Chinese cities are on lockdown. All Apple stores in China and many of its partner outlets have been closed. Other stores that are operating have been witnessing lower footfalls. So, this is clearly affecting Chinese demand. As a result, Apple expects to not match the revenue guidance offered for the March quarter.

Notably, , the company’s revenue forecast for second-quarter fiscal 2020 was in the range of $63-$67 billion. Earlier this month, an analyst at TF International Securities projected that Apple would be compelled to lower iPhone shipments by 10% due to the coronavirus outbreak.

Good Time to Buy Apple Stock?

While news of production delays may cause a momentary slump in Apple shares, investors can utilize this phase as a good entry point. If coronavirus dented iPhone sales now, it should later spur solid pent-up demand, which will be realized by Apple in the future quarters.

A thaw in U.S.-China trade tensions is another positive for the stock. Moreover, Apple Watch’s adoption rate has been growing, which is helping the iPhone maker strengthen its presence in the personal health monitor space. J.P. Morgan expects Apple to unveil four 5G-enabled handsets in September 2020.

ETFs in Focus

If you are still in two minds before investing in Apple after the latest guidance warning, you can invest in Apple-heavy ETFs. The basket approach minimizes the company-specific risks.

Below we highlight five funds having Apple as the top or second firm with a double-digit allocation and sporting a Zacks Rank #1 (Strong Buy) with Medium-risk outlook (see all Style Box - Large Cap Growth ETFs here):

Select Sector SPDR Technology ETF (XLK - Free Report)

This most-popular technology ETF has $28.8 billion in AUM and charges 13 basis points (bps) in fees per year from investors. AAPL occupies the second position and makes up for roughly 19.6% 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 17.4%. It amassed $29 billion in its asset base and charges 10 bps in annual fees.

MSCI Information Technology Index ETF (FTEC - Free Report)

With AUM of $3.74 billion, the product allocates 18.5% to Apple. The ETF has 0.08% in expense ratio (read: Microsoft's Azure Returns to Growth: 5 ETFs to Buy).

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

This ETF provides investors with exposure to the broad technology sector, charging investors 42 bps in annual fees. Here, Apple is the second firm, accounting for 17.6% allocation. The fund has AUM of $5.4 billion.

Invesco QQQ (QQQ - Free Report)

This ETF provides exposure to the largest domestic and international non-financial companies listed on Nasdaq, based on market capitalization, with Apple as the first firm accounting for 11.7% share in the basket. It has $97.5 billion in AUM and charges 20 bps in fees per year.

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