Impact of Apple Earnings on Tech ETF

Apple reports after the bell today and shares could use another shot of the earnings magic the company has displayed over the past year.
Author:
Publish date:

NEW YORK (TheStreet) -- Serial earnings beater Apple (AAPL) - Get Report reports after the bell today and shares could use another shot of the earnings magic the company has displayed over the past year. PowerShares QQQ (QQQQ) is the ETF to play a rebound in Apple shares if that indeed takes place.

Apple's stock has declined for more than a week due to reception problems with their new iPhone. When left-handed users are holding the phone, the natural placement of their hand can cause it to lose reception and drop calls.

Apple's response was ham-handed, at first saying the problem was software related, then acknowledging it was an antenna malfunction. Last week, the company said it would supply free phone cases for customers having issues with existing phones, as well as offer rebates for consumers who want them. The company is working to correct the problem permanently for new phones.

The hit to shares derailed the otherwise steady performance of Apple stock. Since announcing earnings in late April, shares had climbed as much as 10% by late June, compared to a 10% decline in the S&P 500 Index. As the reception problems became widely known, Apple's gains evaporated and it now has a slight loss since April 20.

Video: One-Minute Trade: Apple >>

Since the reception problems didn't become big news until July, earnings are unlikely to have suffered in the previous quarter. The consensus estimate has been rising steadily over time, up 15% in the past three months and 1% in the past week. Estimates for the current quarter and the next year are also moving higher, suggesting that analysts don't see a hit from the antenna problems.

Analysts expect earnings were $3.10 per share in the previous quarter. Given recent history, values closer to $4 per share are more likely. I expect we'll also learn that Apple customers are loyal to the company, and long-term earnings have not been damaged by the antenna issue. With shares down about 10% in the past month and falling for the past six trading days, it sets up a good buy point for bullish investors.

PowerShares QQQ has the greatest exposure to Apple of any ETF, at 19% of assets. This heavily overweight position makes it the best choice for a technology ETF during a period of Apple's outperformance.

Aside from Apple, other holdings in QQQQ report earnings this week.

IBM

(IBM) - Get Report

reported yesterday, while

Microsoft

(MSFT) - Get Report

,

Yahoo!

(YHOO)

Qualcomm

(QCOM) - Get Report

and

eBay

(EBAY) - Get Report

report later this week. While not a direct technology play,

Amazon

(AMZN) - Get Report

also reports, as do biotech companies

Gilead

(GILD) - Get Report

and

Genzyme

(GENZ)

.

Shares of GILD rallied 3% yesterday on news that a gel developed by the company reduced the risk of contracting AIDS and other sexually transmitted diseases.

I expect the rest of the holdings in QQQQ should do reasonably well over the next few days as earnings and outlooks come in slightly ahead of expectations. The only major negative earnings event so far was

Google

(GOOG) - Get Report

, but that was partly due to the company's focus on long-term growth.

Conversely, companies such as

Intel

(INTC) - Get Report

are reporting their largest quarterly profit in company history, while

Advanced Micro Devices

(AMD) - Get Report

is reporting its largest quarterly revenue in company history.

Strong earnings across the industry should lift all technology ETFs, but I suspect QQQQ's Apple boost will move it to the head of the pack this week.

At the time of publication, Dion Money Management owned QQQQ.

Readers Also Like:

>>10 Buy-Rated Stocks Without Buyers

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.