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What Tepid Outlook? Buy Apple ETFs for These 5 Factors
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Apple (AAPL - Free Report) posted impressive fourth-quarter fiscal 2023 results last week, but its Q1 outlook disappointed investors. While Apple topped expectations for revenues, earnings and iPhone sales, investors remained cautious due to concerns about iPhone sales weakness in China (a key market for Apple) and a fourth consecutive quarter of year-over-year revenue decline.
Should You Really Care About China?
While likely sales slowdown in China is a concern, investors should not overlook other booming areas. Let’s highlight those emerging fields.
India: A Rising Star in Apple’s Portfolio
Apple’s investments in India have been strategic and have already started to pay off. Despite making up only 4% of total iPhone sell-through in the 12 months prior to September 2023, unit sales in India increased a massive 31%. This growth stands in contrast to declines in major markets like the United States, China and Europe, per UBS analyst David Vogt, as quoted on Yahoo Finance.
Apple's CEO, Tim Cook, highlighted the importance of India as a budding market with immense prospects. He mentioned that Apple expects more people to enter the middle class in India, which could boost the company's presence in the country.
Services Business Resilience Amid Hardware Struggles, AI Investments in Place
Apple's Services business confirmed consistent growth, offsetting declining hardware sales and promising strong performance in 2024. The Services portfolio, which includes revenues from cloud services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services, has now become the cash cow. The services segment may make up for falling iPhone sales.
During Apple's Q4 earnings call, CEO Tim Cook highlighted the company's recent advancements in AI technology, showcasing features like Personal Voice and Live Voicemail in iOS 17 as examples. Cook also confirmed Apple's active involvement in generative AI technologies.
Mac Sales Rebound in the Cards
The Mac segment has been struggling in recent quarters. Despite a 34% year-over-year revenue decline in the Mac segment in Q4, Apple anticipates a significant turnaround with the introduction of its new M3 chip-powered products.
For 2024, Apple anticipates potential growth opportunities with new MacBooks featuring M3 chips and the launch of the Vision Pro headset. Apple’s focus on augmented reality/virtual reality (AR/VR) technologies presents growth opportunities in the long haul.
Decent Valuation & Return Prospects Compared to Industry
Going by valuation metrics, the P/E (ttm) of AAPL is 30.7 times versus the industry-average of 28.8 times. The forward P/E of AAPL is 28.2 times versus the industry score of 26.7 times. Though these measures point to a slightly higher valuation of Apple than the industry, a higher P/E is not always a sign of worry. It shows investors’ confidence in a particular stock among the bunch.
Investors should note that the return-on-equity of Apple is 160.8%, higher than the industry average of 137.9%. Return-on-assets of Apple is marginally higher than the industry measures. The estimated 3-5 year EPS growth of Apple is now 11.1% versus the industry measure of 9.4%.
More Upside Waiting for Price Target?
Based on short-term price targets offered by 26 analysts, the average price target for Apple is $202.96. The forecasts range from a low of $140.00 to a high of $240.00. The average price target represents an increase of 13.24% from the last closing price of $179.23 (as of Nov 7, 2023).
Apple currently has an average brokerage recommendation (ABR) of 1.71 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated on the basis of actual recommendations (Buy, Hold, Sell etc.) made by 29 brokerage firms. The current ABR compares to an ABR of 1.71 a month ago based on 29 recommendations.
Of the 29 recommendations deriving the current ABR, 17 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 58.62% and 10.34% of all recommendations. A month ago, Strong Buy made up 58.62%, while Buy represented 10.34%.
ETFs to Tap
Although the Apple stock has upside potential, investors who are still doubtful about Apple’s apparent tepid outlook, may play Apple-heavy ETFs as the basket approach minimizes company-specific risks.
Technology Select Sector SPDR Fund (XLK - Free Report) – Apple has 22.89% exposure
Fidelity MSCI Information Technology Index ETF (FTEC - Free Report) – Apple has 22.32% exposure
Vanguard Information Technology ETF (VGT - Free Report) – Apple has 21.25% exposure
iShares Global Tech ETF (IXN - Free Report) – Apple has 20.84% exposure
iShares U.S. Technology ETF (IYW - Free Report) – Apple has 18.08% exposure
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What Tepid Outlook? Buy Apple ETFs for These 5 Factors
Apple (AAPL - Free Report) posted impressive fourth-quarter fiscal 2023 results last week, but its Q1 outlook disappointed investors. While Apple topped expectations for revenues, earnings and iPhone sales, investors remained cautious due to concerns about iPhone sales weakness in China (a key market for Apple) and a fourth consecutive quarter of year-over-year revenue decline.
Should You Really Care About China?
While likely sales slowdown in China is a concern, investors should not overlook other booming areas. Let’s highlight those emerging fields.
India: A Rising Star in Apple’s Portfolio
Apple’s investments in India have been strategic and have already started to pay off. Despite making up only 4% of total iPhone sell-through in the 12 months prior to September 2023, unit sales in India increased a massive 31%. This growth stands in contrast to declines in major markets like the United States, China and Europe, per UBS analyst David Vogt, as quoted on Yahoo Finance.
Apple's CEO, Tim Cook, highlighted the importance of India as a budding market with immense prospects. He mentioned that Apple expects more people to enter the middle class in India, which could boost the company's presence in the country.
Services Business Resilience Amid Hardware Struggles, AI Investments in Place
Apple's Services business confirmed consistent growth, offsetting declining hardware sales and promising strong performance in 2024. The Services portfolio, which includes revenues from cloud services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services, has now become the cash cow. The services segment may make up for falling iPhone sales.
During Apple's Q4 earnings call, CEO Tim Cook highlighted the company's recent advancements in AI technology, showcasing features like Personal Voice and Live Voicemail in iOS 17 as examples. Cook also confirmed Apple's active involvement in generative AI technologies.
Mac Sales Rebound in the Cards
The Mac segment has been struggling in recent quarters. Despite a 34% year-over-year revenue decline in the Mac segment in Q4, Apple anticipates a significant turnaround with the introduction of its new M3 chip-powered products.
For 2024, Apple anticipates potential growth opportunities with new MacBooks featuring M3 chips and the launch of the Vision Pro headset. Apple’s focus on augmented reality/virtual reality (AR/VR) technologies presents growth opportunities in the long haul.
Decent Valuation & Return Prospects Compared to Industry
Going by valuation metrics, the P/E (ttm) of AAPL is 30.7 times versus the industry-average of 28.8 times. The forward P/E of AAPL is 28.2 times versus the industry score of 26.7 times. Though these measures point to a slightly higher valuation of Apple than the industry, a higher P/E is not always a sign of worry. It shows investors’ confidence in a particular stock among the bunch.
Investors should note that the return-on-equity of Apple is 160.8%, higher than the industry average of 137.9%. Return-on-assets of Apple is marginally higher than the industry measures. The estimated 3-5 year EPS growth of Apple is now 11.1% versus the industry measure of 9.4%.
More Upside Waiting for Price Target?
Based on short-term price targets offered by 26 analysts, the average price target for Apple is $202.96. The forecasts range from a low of $140.00 to a high of $240.00. The average price target represents an increase of 13.24% from the last closing price of $179.23 (as of Nov 7, 2023).
Apple currently has an average brokerage recommendation (ABR) of 1.71 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated on the basis of actual recommendations (Buy, Hold, Sell etc.) made by 29 brokerage firms. The current ABR compares to an ABR of 1.71 a month ago based on 29 recommendations.
Of the 29 recommendations deriving the current ABR, 17 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 58.62% and 10.34% of all recommendations. A month ago, Strong Buy made up 58.62%, while Buy represented 10.34%.
ETFs to Tap
Although the Apple stock has upside potential, investors who are still doubtful about Apple’s apparent tepid outlook, may play Apple-heavy ETFs as the basket approach minimizes company-specific risks.
Technology Select Sector SPDR Fund (XLK - Free Report) – Apple has 22.89% exposure
Fidelity MSCI Information Technology Index ETF (FTEC - Free Report) – Apple has 22.32% exposure
Vanguard Information Technology ETF (VGT - Free Report) – Apple has 21.25% exposure
iShares Global Tech ETF (IXN - Free Report) – Apple has 20.84% exposure
iShares U.S. Technology ETF (IYW - Free Report) – Apple has 18.08% exposure