Apple Beats Street: These Stocks Benefit From AAPL’s Growth
The market ripped higher yesterday. Volume also surged as investors dived back into the market on positive earnings results. Safety assets like gold and silver also took a dive as traders favored a risk trade.
Technology was the stand-out sector yesterday and I expect it to do well today as well. Last night iPad maker Apple (Nasdaq: AAPL) reported a record second quarter. Apple earned $7.3 billion as net profit grew by 125%, and revenue grew 82% to $28.7 billion.
Apple did announce guidance below analyst estimates. But management at Apple is known for conservative guidance. Shares quickly jumped to $399 following the earnings announcement; and if Apple can keep that price today it would give the company a market cap of $365 billion, which is just shy of Exxon at $415 billion.
I expect the positive results from AAPL will provide technology stocks connected to Apple with a boost today. Yesterday we went long one of those technology stocks, ALU, which benefits from the increased use of wireless devices.
Over the next couple years, Alcatel Lucent (NYSE: ALU) will change the way communication towers are used. The company is developing a box that will bring these cell towers into the 21st century.
The device Alcatel Lucent invented is called LightRadio, and this piece of equipment is used in combination with current cell towers to help expand speed and capacity.
The problem with modern cell towers, aside from the severe cost to keep them, is that they are wasteful. Today's cell tower was designed to send signals in all directions and at all times of the day. But most of this goes unused by the consumer.
Think of this wasted signal like a hotel room or an airplane seat that goes empty - once the inventory is gone there's no getting it back. Yet the cost to make that inventory available in the first place remains.
That's like these cell towers. They cost a lot of money to put up, but most of what they produce just vanishes into thin air, never to be used, recouped, or paid for by consumers.
Alcatel Lucent plans on changing that with LightRadio.
Even without LightRadio, Alcatel Lucent is growing sales. Its network segment, which competes with Cisco (Nasdaq: CSCO), has grown revenues substantially over the past two years. Within the networking segment, we can see wireless has experienced the strongest relative revenue growth, and represent 30% of sales. And that growth will continue into the future and the higher margin business of IP and wireless will also become a greater component of total revenue.
Analysts agree and have raised their financial estimates this year. They expect Alcatel Lucent to earn $0.28 EPS this year, up from a loss of $0.09 last year. Next year, analysts expect EPS to double to $0.51. Revenues are expected to expand 13% this year to $24 billion and increase 6% to $25 billion in 2012. And I believe, that based on those estimates, shares will trade up to $10 in a year, but for now let's focus on $5.50.
Other stocks that will ride the coattails of AAPL are: NVDA, MRVL, MU, ZAGG, LPL, CY, ATML, CRUS or TQNT. For more trade ideas please watch the weekend video, HERE, which is free to all TradeMaster subscribers. A few stocks from the weekend video review are already up 30% this week and I think there is more upside left.
