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Apple ETFs in Tug-of-War Ahead of Q2 Earnings

Apple Inc. AAPL has been an underperformer this year, with a year-to-date loss of 10.7%, underperforming other mega-cap technology companies. Its lesser exposure to AI within the “Magnificent Seven” group and concerns over the sales growth of iPhone in the key China market can be held responsible for this lackluster performance.

Plus, rising rates have played a role in pushing the stock down in recent trading. Apple's stock recorded a 3.4% drop over the last five days. Apple is expected to come up with 2Q24 earnings results on May 2. Just prior to the earnings release, the stock is caught between bullish and bearish commentaries from Wall Street watchers.

Let’s delve a little deeper:

Inside the Bullish Theory

Bank of America named Apple a top pick for 2024, citing optimism over upcoming results and longer-term prospects. Analyst Wamsi Mohan, with a buy rating and $225 price target, highlighted Apple's "rich catalyst path with defensive cash flows."

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BofA has positive expectations about Apple's second-quarter results, with expectations of strong services revenue growth and margins. However, the bank warned about a potential pullback in shares due to a weak demand environment.

Inside the Bearish Theory

Morgan Stanley lowered its price target on the stock to $210 from $220 on Monday, expecting Apple to give a disappointing forecast when it reports. The firm suggests buying on post-earnings weakness, anticipating an upcoming Apple event focused on AI. Bloomberg Intelligence is still cautious, particularly regarding weaker iPhone demand in China.

UBS Global Research also downgraded its rating on Apple with the other big five tech stocks. UBS downgraded because of tough comps and cyclical forces that hurt these stocks.

Trend of Analysts' Earnings Estimate Revision

The company saw no earnings estimate revision over the past 30 days for the fiscal first quarter. The iPhone maker has a decent track of positive earnings surprises. It delivered an average beat of 5.20% in the trailing four quarters.

Skeptic Market Sentiment

Despite Apple's prominence in benchmark equity indexes, Wall Street is fairly skeptical, with only 55% of analysts tracked by Bloomberg recommending the stock compared to higher percentages for other tech giants.

However, some strategists find AAPL attractive given the stock's relatively cheaper valuation and potential benefits from a rotation to less rate-sensitive stocks amid high inflation and rising yields.

Broker Rating

Apple currently has an average brokerage recommendation (ABR) of 1.80 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 28 brokerage firms. The current ABR compares to an ABR of 1.80 a month ago based on 28 recommendations.

Of the 28 recommendations deriving the current ABR, 16 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 57.14% and 10.71% of all recommendations. A month ago, Strong Buy made up 57.14%, while Buy represented 10.71%.

Price Target

Based on short-term price targets offered by 28 analysts, the average price target for Apple comes to $205.24. The forecasts range from a low of $158.00 to a high of $250.00. The average price target represents an increase of 24.39% from the last closing price of $165.00.

ETFs in Focus

Investors intending to follow bullish comments from Wall Street analysts but still wary of slowing sales of Apple may take the ETF route. This is because ETFs help investors mitigate one company’s average performance with the other big tech companies’ stellar presence.

Below, we highlight a few ETFs with heavy exposure to Apple for investors seeking to bet on the stock with much lower risk.

Select Sector SPDR Technology ETF XLK – AAPL holds the second spot with 19.10% weight. The fund has a Zacks Rank #1 (Strong Buy).

Vanguard Information Technology ETF VGT – AAPL occupies the second location with 16.39% weight. The fund has a Zacks Rank #1.

iShares Dow Jones US Technology ETF IYW – AAPL takes the second spot with 15.21% weight. The fund has a Zacks Rank #1.

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Apple Inc. (AAPL) : Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

iShares U.S. Technology ETF (IYW): ETF Research Reports

Vanguard Information Technology ETF (VGT): ETF Research Reports

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Zacks Investment Research