Technology giant Apple AAPL is set to release first-quarter fiscal 2017 results on January 31 after market close. Since Apple accounts for over 19% of the total market capitalization of the entire technology sector in the S&P 500 index, it is worth taking a look at its fundamentals ahead of results (read: 5 ETF Investment Ideas for 2017 ).
Investors should note that Apple has been on an uptrend over the past three months, locking in gains of about 11%. In fact, the stock is currently within the striking distance of its 52-week high of $122.44. The upside might weaken as our proven model shows that the company has a lower probability of beating estimates this quarter. Additionally, the positive earnings estimate revision trend, which is generally a precursor to an earnings beat, is absent for the stock.
Inside Our Methodology
The stock saw no earnings estimate revision over the past seven days or 30 days. Though AAPL's earnings surprise history is strong with a positive earnings surprise of 0.11% on average in the past four quarters, the stock has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.93% indicating lower chances of beating estimates this quarter (read: Bartosiak: Trading Apple's (AAPL) Earnings with Options ).
Betting on stocks that have a combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) usually leads to profits in an investor's portfolio. Our research shows that the chance of a positive earnings surprise is as high as 70% for the stocks with this combination. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter
Further, the stock has an ugly Industry Rank in the bottom 14% with an unimpressive Growth and Momentum Style Score of D and F, respectively, though a Value Style Score of B looks good. According to the analysts compiled by Zacks, Apple has an average target price of $132.10 with about 77% of the analysts having a Strong Buy or a Buy rating ahead of its earnings. This indicates an 8.3% upside to the current price of AAPL.
What's Hot This Earnings Season?
Apple had recorded its first annual revenue and profit decline in 15 years last fiscal year due to the saturation of the smartphone market. In addition, iPhone sales declined in the trailing three quarters. Analysts are expecting this trend to reverse with growth in both revenue and iPhone sales when it reports quarterly results (read: Will Q4 Earnings Strengthen Tech ETFs Further? ).
In fact, Apple is expected to have sold 78 million iPhones in first-quarter fiscal 2017, up from 75 million in the year-ago quarter, with revenues rising to $77.9 billion.
As such, sales of the iPhone remained the major driver in the upcoming earnings report that will push up the stock price.
ETFs on Radar
Given the above discussion, it is clear that sales is the most important metric this reporting cycle and that an earnings beat might be in store. As a result, investors' could definitely focus on ETFs having the largest allocation to the tech titan.
While there are several ETFs in the space having Apple in their top 10 holdings, we have highlighted four funds that have Apple as their top firm. All these funds have a Zacks ETF Rank of 2 or 'Buy' rating with a Medium risk outlook (see: all the Technology ETFs here ):
iShares Dow Jones US Technology ETF IYW - The fund is up about 8% over the past three months and Apple makes up for 16.1% of the assets.
Select Sector SPDR Technology ETF XLK - The fund added more than 7% in the same time frame and Apple accounts for 13.7% share.
MSCI Information Technology Index ETF FTEC - This ETF gained 7.6% and Apple has 13.2% allocation.
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