Is the earnings recession finally over?

The latest figures from research firm FactSet seem to suggest as much. With nearly a quarter of the S&P 500 having reported for the third quarter, 78% of companies have posted earnings above the mean estimate.

The estimated blended earnings decline for the S&P 500 is pegged at -0.3%, a relatively modest dip that would set the table for robust fourth-quarter and full-year results.

In the earnings spotlight is Apple (AAPL) - Get Report , which is scheduled to report fiscal fourth-quarter results for the period ended Sept. 24, after the market closes on Tuesday. The average analyst consensus is for earnings to come in at $1.65 a share, compared with $1.96 a share a year earlier.

Image placeholder title

Let's look at what to watch for in the company's imminent earnings report and why the Cupertino, Calif.-based behemoth is poised to be a growth stock winner.

But first, some context.

Stocks rose Monday as stronger-than-expected earnings and a flurry of corporate deal-making buoyed Wall Street's mood. When big companies have cash to spend on mergers, it boosts investor confidence.

The biggest pending merger is AT&T's agreement to buy Time Warner for $85.4 billion, though many observers think that antitrust concerns will eventually torpedo the mega-deal. Another huge deal with a better chance of coming to fruition is British American Tobacco's $47 billion bid for Reynolds American.

More than five multi-billion dollar corporate deals were unveiled in recent days, worth a combined total of $207 billion.

As the real estate, telecommunication and utility sectors slip amid interest rate fears, technology is hot. The benchmark Technology Select Sector SPDR Exchange-Traded Fund rose nearly 1% Monday and is up more than 12% year to date, compared with a gain of more than 5% for the S&P 500.

Major components of the Technology Sector Sector SPDR ETF including Apple and Alphabet, which owns Google, rose ahead of earnings reports this week. And Microsoft is trading at record highs after posting strong earnings last week.

Apple and Alphabet are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stocks here. Want to be alerted before Cramer buys or sells AAPL and GOOGL? Learn more now.

The tech sector is enjoying high free cash flow and increasing demand due to economic recovery as consumers and corporations increase spending. That is why Apple is a compelling tech buy.

TST Recommends

To be sure, when the company releases operating results Tuesday, analysts expect the third-straight quarterly decline in unit sales of the iPhone, the company's biggest sales driver. But that shouldn't stop investors from scooping up this undervalued blue chip.

The iPhone faces slowing demand in saturated emerging markets, as well as lower-priced competitors. This quarter will mark the first one to show sales of the newly released iPhone 7, though only the first two weeks of sales.

Also under the microscope will be demand in China, a vast market that accounts for 25% of iPhone sales by geography.

Don't be deterred by any temporary speed bumps. Long-term earnings momentum is in the cards for Apple, as the iPhone 7 continues to capitalize on the exploding battery woes of the Android smartphone put out by rival Samsung Electronics.

What's more, Apple is set to announce new MacBooks on Thursday, and consumer tech analysts are so far positive about the redesigns.

In its fiscal third quarter, Apple scored an earnings surprise of 4.30%. For the next five years, earnings are expected to grow by an average 7.83% annually, compared with 0.06% for the industry.

Apple is an iconic and beloved brand name, with zero debt and an attractive valuation. Shares trade at a trailing 12-month price-earnings ratio of just 13.72, compared with 17.1 for its industry of electronic equipment.

The stock has been hot lately, rising more than 11% this year. But there is still room for further market-beating capitalization, despite concerns about soft smartphone sales and cooling Chinese demand.

Apple shares are trading at about $118. The average analyst consensus for a one-year price target is $127.22, which would represent a gain of nearly 8%.

Investors should be bullish on the consumer empire that Steve Jobs built, especially as the holiday shopping season approaches. The company may have lost its legendary co-founder but it still commands the best engineering minds and marketers on the planet, buttressed by an enormous cash hoard.

Apple isn't done releasing innovative, game-changing products, not by a long shot. This stock belongs in investors' long-term growth portfolios.


As we've just explained, Apple is a smart bet now. If you're looking for other growth opportunities, we've found a genius trader who turned $50,000 into $5 million by using his proprietary trading method. For a limited time, he's guaranteeing you $67,548 per year in profitable trades if you follow his simple step-by-step process. Click here now for details.

John Persinos is an editorial manager and investment analyst at Investing Daily.

At the time of publication, he owned stock in Apple.

Persinos appears as a regular commentator on the financial television show Small Cap Nation.Follow him on Twitter.