FAANG ETFs Face Off Amid New Tariffs: Apple Vs. Amazon

The technology sector has witnessed huge sell-off in the first week of September triggered by congressional scrutiny of social media companies that raised fears of a new regulation. This was followed by a decline in chip stocks on warnings over weakness in demand for memory chips.

Notably, two of the FAANG stocks — Apple AAPL and Amazon AMZN — lost more than $100 billion in market cap combined in the tech rout and dropped below the recently claimed trillion-dollar company. Apple became the first U.S. trillion-dollar company on Aug 2 followed by Amazon on Sep 4.

However, Apple regained its lost market capitalization of $1 trillion while Amazon is still far away. This is especially true as Apple got a boost from the new versions of iPhone launches last week. Additionally, the technology giant escaped largely unscathed from the second round of Trump’s tariff, which excludes consumer gadgets like iWatch (read: Trump Slaps $200B in China Tariffs: ETFs in Focus).

On the other hand, the e-commerce giant got embroiled in the escalating tit-for-tat tariff talks given that the latest tariff will be applied to routers, networking gear and components for computer servers that will result in higher operating cost for Amazon Web Services (AWS), the primary source of the company’s profitability.

A Trillion-Dollar Club

The journey of the iPhone maker from a niche player in personal computers to a global powerhouse spanning entertainment and communications has been remarkable. The achievement was unpredictable in 1997 when Apple was on the verge of bankruptcy, with its stock trading for less than $1, on a split-adjusted basis, and its market value dropped to below $2 billion. If someone had dared to buy $10,000 worth of the stock at that point of desperation, the investment would now be worth about $2.6 million.

The iPhone maker has surged more than 50,000% since its 1980 initial public offering, dwarfing the S&P 500's 2,000% increase during the same almost four decades (read: Spread of ETFs to Taste Apple's Trillion Dollar Market Cap).

Amazon went public in 1997 at $18 per share and took almost 21 years to achieve the trillion-dollar milestone, much faster than Apple, which took 38 years. Shares of AMZN rose to $100 by October 2009 and then crossed $1,000 on May 30, 2017. After 10 months on Aug 30, its shares hit another milestone of $2,000. In fact, Amazon was worth just $580 billion at the beginning of this year and has surged more than 70% since then.

The e-commerce giant has skyrocketed about 135867% since its initial public offering, dwarfing the S&P 500's 755% increase (read: Amazon Hits Trillion Dollar Market Cap: ETFs to Buy).

With the latest milestone, both stocks account for 4% of the S&P 500 each.

Apple Versus Amazon

Though Amazon has a top Growth Score of A meaning that it is primed for strong growth, Apple looks cheaper at the current levels as it is trading at a P/E ratio of 18.53 versus 107.38 for Amazon. Additionally, AAPL carries a Zacks Rank #1 (Strong Buy) and falls under a top-ranked Zacks industry (top 5%).

About 46% of the analysts have a Strong Buy or Buy rating on Apple with an average target price of $228.15, as per the analysts compiled by Zacks. While the company’s earnings are expected to grow 27.67% this year, lower than the industry average of 63.84%, revenues will likely increase 15.10%, much higher than the industry’s growth of 9.94%. Further, the stock saw solid earnings estimate revision of 14 cents over the past seven days for the next fiscal (ending September 2019).  

Meanwhile, Amazon has a Zacks Rank #2 (Buy) but falls under a bottom-ranked Zacks industry (bottom 16%). Earnings and revenues are estimated to grow 290.51% and 31.76%, respectively, much higher than the respective average industry growth of 11.70% and 14.43%. According to the analysts compiled by Zacks, AMZN has an average target price of $2148.38, with about 94% of the analysts having a Strong Buy or a Buy rating. The stock has seen no earnings estimate revision for this year over the past seven days (see: all the Technology ETFs here).

ETFs to Bet On

Based on the above discussion, Apple seems like a more solid choice given its Zacks Rank #1, top-ranked industry, cheap valuation and positive earnings estimate revision. As such, investors could bet on AAPL in a basket form with iShares U.S. Technology ETF IYW, Vanguard Information Technology ETF VGT, Select Sector SPDR Technology ETF XLK, and MSCI Information Technology Index ETF FTEC. Apple is the top firm in these ETFs and accounts for 18.4% share in IYW, 18.2% share in VGT, 15.6% share in XLK and 14.5% share in FTEC. These funds have shed about 2.5%,1%, 1.5% and 1.8%, respectively, so far this month. VGT and FTEC have a Zacks ETF Rank  #1, while XLK and IYW have a Zacks ETF Rank #2 each (read: Tech ETFs Tumble: Should You Buy the Dip?).

Investors seeking to bet on Amazon could consider Consumer Discretionary Select Sector SPDR Fund XLY, ProShares Online Retail ETF ONLN, Vanguard Consumer Discretionary ETF VCR and iShares U.S. Consumer Services ETF IYC. AMZN occupies the top position in these ETFs with 24.4% share in XLY, 24.1% in ONLN, 23.3% in VCR and 21.1% in IYC. The Zacks Ranked #2 XLY and IYC are almost flat while ONLN and VCR, having a Zacks ETF Rank #3 (Hold) have shed 3.6%, and 0.4% respectively, this month.

Investors seeking to play both companies at the same time could look at Invesco QQQ QQQ, iShares Evolved U.S. Technology ETF IETC and iShares North American Tech ETF IGM. QQQ has the largest combined 23.3% share in both AAPL and AMZN, followed by 19.7% in IETC and 18.5% in IGM. QQQ, IETC and IGM has shed 2.1%, 1.7% and 1.8%, respectively, so far this month. QQQ and IGM have a Zacks ETF Rank #1.

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