Apple Quarter Could Aid Battery Makers

Makers of lithium ion batteries could get a lift from Apple's(AAPL Quote) fourth-quarter earnings and revenue that topped analysts' estimates.

The performance bodes very well for makers of lithium ion batteries such as China Bak Battery(CBAK Quote), Advanced Battery Technologies (ABAT Quote), Hong Kong Highpower Technology(HPJ Quote) and China Digital Communication (CMTP.OB Quote), none of which have yet released quarterly results.

All of these stocks are public and liquid, but they trade on very different multiples, so investors should select carefully. China Bak is one to avoid for now, while China Digital could be the next home run. Advanced Battery and Hong Kong Highpower look fairly valued, but could benefit further if there are any positive earnings surprises.

Inside every iPod, iPhone and Apple laptop is a lithium ion battery. The lithium ion battery has become smaller, more energy efficient and longer lasting, effectively replacing the previous generation of nickel metal hydride batteries. The four companies are all competitors in this market and are currently enjoying high margins as demand for products such as those made by Apple continues to soar. Apple's strong results provide a great barometer for what to expect from upcoming earnings reports by these battery makers, all of which should enjoy a strong pick-up in revenue.

Following the initial public offering of A123 Systems (AONE Quote), China Bak's stock price is up more than 50% as enthusiasm has grown for next-generation battery makers. But like A123, CBAK is a money-losing company. I would expect to see significant revenue growth from CBAK this quarter, but unless it can effectively double sales from the previous quarter, it is unlikely to break even in the coming quarter.