3 ETFs Set to Surge Post Solid Apple Earnings

Technology giant Apple (AAPL) reported blockbuster second quarter fiscal 2014 results after the bell yesterday. The company beat on both the top and bottom lines, and surprised the market with huge 7-for-1 stock split announcement. This has lent optimism not only to the company’s growth story but has also spread bullishness in the entire tech world, which has seen broad sell-off in the past weeks.

Apple Results in Focus

Earnings per share came in at $11.62, which comfortably surpassed the Zacks Consensus Estimate of $10.22 and improved from the year-ago earnings of $10.09. The company’s earnings growth reached the highest rate in six quarters.

Revenues rose 4.7% year over year to $45.6 billion, and were well ahead of our estimate of $43.4 billion. Gross margin was 39.3%, up from 37.5% in the year-ago quarter and higher than the company’s expectation of 37–38%.

Apple sold 43.7 million iPhones compared to 37.4 million in the year-ago quarter and topped the Wall Street estimate of 38.5 million iPhones. iPad sales fell to 16.35 million from 19.5 million (read: Technology ETFs: Pain or Gain Ahead?).

The ubiquitous gadget-maker sees revenues in the range of $36–$38 billion for the current quarter; the midpoint of which is lower than the Zacks Consensus Estimate of $38.76 billion. Further, Apple expects gross margin in the range of 37–38% for the third quarter of fiscal 2014.

Apple showed increased confidence in its future growth by raising shareholders’ reward. The company raised its share repurchase program by $30 billion, boosted its quarterly dividend by 8% to $3.29 per share and split its stock on a 7-for-1 basis effective June 9. This will increase the company’s capital-return program to $130 billion by the end of calendar year 2015.

Market Impact

Outstanding results and the expanded capital program sent the Apple shares higher as much as 8% in after-market hours on heavy volume. This indicates smooth trading for some of the ETFs having the largest allocation to this giant.

Further, the stock has a Zacks Rank #3 (Hold) and its industry also has a solid Zacks Rank (in the top 40%) as per the Zacks Industry Rank, suggesting room for upside. Given this, investors should closely monitor the movement in these technology-focused ETFs and could catch the opportunity from any surge 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 Consider

iShares Dow Jones US Technology ETF (IYW)

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 $3.9 billion while charging 45 bps in fees and expense. Volume is moderate as it exchanges nearly 378,000 shares in hand a day.

Apple occupies the top position in the basket with 15.94% of assets. The product is heavily skewed toward the technology hardware and equipment segments, as these make up for half of the portfolio. Software and computer services take the remaining portion in the basket.

The fund has added nearly 2.4% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Select Sector SPDR Technology ETF (XLK))

The most popular technology ETF on the market, XLK follows the S&P Technology Select Sector Index. This fund manages about $12.5 billion in asset base and trades in heavy volume of roughly 7.7 million. The ETF charges 16 bps in fees per year from investors (read: 3 Dirt Cheap Top Ranked ETFs to Buy Now).

In total, the fund holds about 73 securities in its basket. Of these firms, AAPL takes the first spot, making up roughly 13.41% of the assets. In terms of industrial exposure, the fund is widely spread across hardware storage & peripherals, software, IT services, Internet software & services and diversified telecom services that make up for double-digit allocation.

The fund is up over 2% year-to-date. XLK currently has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Vanguard Information Technology ETF (VGT)

This fund manages over $5 billion in asset base and provides exposure to a large basket of 394 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 12.7% allocation. From a sector perspective, technology hardware & storage take the largest share at 18.2%, closely followed by Internet software & services (16.70%) and systems software (14.30%).

VGT has added 1.4% year-to-date and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Time to Bargain Hunt with This Technology ETF?).

Bottom Line

Due to heavy allocation to Apple, the three products could see solid trading in the next few sessions. Investors should definitely cash in on any surge in the prices of these funds resulting from Apple results and the ways to increase shareholders return given that the trio has decent ranks and the potential to outperform or perform on par with the broad market.

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