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Get Ready for Another Earnings Deluge

July 24, 2012

Today is the big day for Apple Inc. (AAPL). The company will report earnings later this afternoon and all eyes will be on the report. Expectations are for earnings of $10.36 per share on $37.2 billion in sales.

Those are impressive numbers, but this would represent the slowest sales and profit growth in two years. That may be disheartening to some investors, but slowing down to 30% sales growth and 33% earnings growth is like driving a car 150 miles an hour and slowing down to just 100 mph!

And demand for Apple products is still incredibly strong. It is expected that we'll get a new iPhone this fall—though no formal announcement has been made—yet the major wireless providers are still showing strong sales of the current iPhone. AT&T Inc. (T) announced earnings this morning and stated that it sold a million more iPhones this quarter than it did in the previous quarter.

I'm still incredibly bullish on this stock and have recently seen some price targets of $1,500 a share for AAPL. I'm not ready to go that far with my recommendation just yet, but I like the short-term, mid-term and long-term outlook for this company.

There are a number of other companies that will report earnings this week that I want you to keep your eye on as well.

Wednesday, July 25th

I'm a sucker for horsepower. I love cars that go fast and right now Tesla Motors (TSLA) has one of the quickest electric vehicles on the market. Its Roadster is an electric sports car that boasts 300 horses under the hood and a 0 to 60 mph time of 3.7 seconds. It's an exciting car, but the price tag is high (it starts at just over $100,000) and the interest is low. Expectations for the quarter are for an earnings loss of $0.93 per share. That translates to a 47.3% dip in sales and a 75.5% drop in earnings. No matter how much people want to get away from gas-powered vehicles, they aren't willing or able to pony up luxury prices to do so. The new Tesla Model S is coming to market soon and at a starting price of about $50,000 there may be a bigger market. But no matter what, now is not the time to buy shares of TSLA.

There's another car company reporting tomorrow that I want to profile—Ford Motor Co. (F). The situation is not quite so dire at Ford. Sales are expected to slip just 4% for the quarter but earnings are expected to decline 42.9%. Ouch! But the biggest factor keeping me away from the stock is buying pressure. The market is sick of getting burned by these companies. Between the shaky fundamentals and constant recalls—Ford just recalled their 2013 Escapes because of a fire risk—there is to much risk in many of the auto stocks. Steer clear of this one this earnings season.

Thursday, July 26th

Dr Pepper Snapple Group (DPS) will report earnings on Thursday and I love this company. I've recommended this company to my Blue Chip Growth members for the last year and while we've made some nice double-digit gains, the 3.1% dividend payment has been fantastic. While the earnings growth with this company is not quite as explosive as AAPL, this is a safe beverage company with solid fundamentals across the board. I rate DPS a buy.

Also on Thursday morning we'll hear from 3M Co. (MMM). While this company also pays a nice dividend, I'm not a buyer just yet. The company has had trouble growing its sales and margins of late which is impacting earnings growth and the ability to post earnings surprises. At best, I rate MMM as a hold. If you already own it, the risk is low to hold on. But if you're thinking about establishing a new position, I would wait for margins to improve and buying pressure to build.

Friday, July 27th

Wrapping up the week is Merck & Co. Inc. (MRK). This is an interesting one. The stock has been on a great run in the last two months—rising nearly 16% in what has been a rough period for the indices. Big drug companies are riding the "ObamaCare" decision wave lately, but what's on tap for earnings? Sales are expected to be flat from the year-ago quarter while earnings should be up just 6% over last year. Operating margins are at 22%, cash flow is decent and buying pressure is top notch. If the company can eke out an earnings surprise, it will keep momentum building for the stock. I rate MRK as a buy in my free stock rating tool.

If there are any major earnings developments this week, you can be sure that I'll be in touch immediately with another Market 360 update and through our Daily Blog. So check your email and regularly for updates. Until then, if there's a stock you'd like to get my buy/sell/hold recommendation on this earnings season, log on to my free stock-rating tool, Portfolio Grader, for my current advice.


Louis Navellier

Louis Navellier

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