The Zacks Analyst Blog Highlights: Caterpillar, Cummins, Apple, Google and Volkswagen

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Jul 16, 2012, 09:30 ET

CHICAGO, July 16, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Caterpillar (NYSE:CAT), Cummins (NYSE:CMI), Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG) and Volkswagen AG (OTC:VLKAY).

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Here are highlights from Friday's Analyst Blog:

What's Holding Apple Up?

There are a few stocks I really look forward to earnings from. Caterpillar (NYSE:CAT) and Cummins (NYSE:CMI) tell us about China/EM growth. And we know what we just learned from CMI... it's getting ugly out there. CAT reports July 25.

And then there's Apple (Nasdaq:AAPL), which is one stock I say where you always buy the dips. Not just a "tech" story, it lives on its own stage where its "must-have gadget magic" makes it a consumer revolution story.

Now, it is also a huge developing markets story as iPhone and iPad sales ramp up in China and other places where emerging consumer classes aspire to have the things that Japanese and American citizens have.

So not even a global slow-down that has banking firms slashing technology cap-ex and earnings estimates seems like it will affect Apple much. Maybe Google (Nasdaq:GOOG), which reports next week, is another new tech bellwether immune from this.

But one analyst at a respected firm begs to differ and stuck his neck out this week to say so. Keith Bachman of BMO Harris Capital Markets warned that the next two quarters for Apple could be much softer than consensus expectations. You can easily search for the story in Barron's and elsewhere, but I will give a couple of details I can recall.

Bachman raised his estimates for iPhone sales but sees iPads negatively affecting Mac numbers. He is mostly focused on the September quarter where he sees only $33 billion in revenue vs the consensus of $38.5B.

Recent downward estimate revisions in the Zacks data may be from Bachman...

June quarter: down to $10.18 from $10.21 vs consensus $10.34

Sep quarter: down to $9.84 from $10.55 vs consensus $10.27

Full year 2012: down to $46.15 from $46.90 vs consensus $46.87

And here's a quote from his report...

"However, we think investors are well aware of the product cycle, and likely negative revision to near-term estimates. Moreover, we think Apple shares will respond in a positive way to the pending launch of the new iPhone, as we look to year-end. If Apple is able to launch the new iPhone in the month of September, then actual unit shipments in the September Q will be less relevant, as management and investors will focus on the momentum of the new iPhone."

Okay, now to my point. I think the stock market is fighting to justify its existence near S&P 1350 and I think Apple will take out the last swing lows near $566 before it goes to new highs above $644.

The current pre-earnings ramp above $600 may be justified for some investors who can't afford to be caught short AAPL shares if they do surprise to the upside. And if you are long-term investor with at least a 2-year horizon, I think buying at $600 is a good investment.

But for short-term swing traders, gaming the 10% you might make in the next few months isn't a good high-probability edge. Better to wait and see what July 24 brings.

Two weeks ago I wrote that we'd see $500 before $700. I still stand by that, but I'd be a buyer of this earnings machine with 70% EPS growth this year anywhere near $550.

Currently trading just under 13X 2012 estimates, Apple is very likely to bust through the $50 EPS mark next year with the launch of new the iPhone5 and Apple TV. Which means it's trading for under 12X, to say nothing of its cash hoard.

What do you say about AAPL for either a trade or an investment? Buy it now at $600 or wait for it to go on sale again?

Volkswagen, Porsche Flock Together

Volkswagen AG (OTC:VLKAY) and sports car manufacturer Porsche Automobil Holding SE have announced their plans to set up the integrated automotive group through the integration of Porsche's automotive business, Porsche AG, into the Volkswagen Group. The integration would be complete by the onset of August. The plan has been cleared by the relevant governing bodies of both the companies.

According to the agreement signed in 2009, Volkswagen which already owns 49.9% of Porsche AG will purchase the remaining 50.1% stake in the entity. Volkswagen has made an offer of €4.46 billion ($5.61 billion) along with one Volkswagen ordinary share to the holding company Porsche SE, for the takeover. The cash transaction is based on the equity value of €3.88 billion. The integration will strengthen both the companies financially.

The integration will add to the existing brands sold by Volkswagen including Audi, Volkswagen, Seat, Bugatti, Lamborghini and Bentley along with truck makers MAN and Scania. In addition, realization of joint projects will lead to growth opportunities for the company.

Porsche SE will receive dividends for its indirect stake in Porsche AG. It will also book half of the present value of the expected synergies from the integration, which has been pegged at around €320 million.

The acquisition of Porsche AG will not only result in a saving of €700 million ($880 million) along with tax benefits but will also have favorable effects on its Volkswagen's earnings. However, charges will offset the operating profits in the current year.

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