$AAPL - Apple Stock Is Caught Between Two Eras

Apple shares have stalled with iPhone sales, but medical breaththroughs using the Watch are coming

By Dana Blankenhorn, InvestorPlace Contributor

If you took good advice and have just held Apple (NASDAQ:AAPL) stock, say for five years, your patience has been rewarded. AAPL stock has more than doubled the gain in the S&P average, rising 109%, and delivered a stream of dividends rising from 47 cents per quarter to today’s 77 cents.

If you’ve tried to time Apple, getting in right after bad news, you may be out of the money.

Traders recognize the company is caught between two eras, that of the iPhone and that of the Apple Watch. Results will be choppy until the chasm is crossed. How long that will take is anyone’s guess. Some don’t even think Apple will cross it.

Shares that traded as high as $220 last year, and for less than $150 at the start of 2019, were due to open June 10 at $190. That’s a market cap of $875 billion. By comparison, Microsoft (NASDAQ:MSFT), has sailed past $1 trillion and Amazon (NASDAQ:AMZN) is now at $888 billion.

Apple Browning

Cut into an Apple and it will start to brown at the cut. Rot, in nature or in business, can appear quickly, unless innovation is obvious.

Apple today isn’t seen as an innovator. The iPhone was announced in 2007, and sales peaked in 2015. This product has consistently represented over half Apple’s revenue since 2013.

This is why Apple sales are down this year, but not by nearly as much as iPhone sales. Services, increasingly delivered by Apple’s own cloud, have taken up some of the slack.

This has become a primary focus, with Apple getting into TV, payments, gaming and news subscriptions. But with 20% growth adding less than what’s lost with reduced iPhone sales, analysts have become dissatisfied. Only half now have it as a buy, and three even say sell it.

The Next Gold Mine

As baby boomers continue to age, and as health care costs continue to increase, Apple has a new gold mine ready to open. Things like games, news and even TV are just placeholders.

It’s because of the Apple Watch that CEO Tim Cook has begun emphasizing privacy, and dissing fellow cloud czars Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB) in public statements.

That’s because the Apple Watch can save lives. It’s not yet a full-fledged health device, and there are plenty of doctors claiming it can’t be trusted in that way.

But it doesn’t have to be.

That’s because three-quarters of the $3.5 trillion U.S. health bill involves chronic conditions like heart disease and diabetes.

Even at its present, primitive level, Apple helps in cardiology, telling patients when they need to see a doctor for detailed tests.

The big money will come from monitoring sugar levels. Apple has been working toward this for years and there are external devices that connect to the Watch. Getting monitoring into the Watch, making it non-invasive, is the next step.

Diabetes was a $327 billion market in 2017, up from $245 billion in 2012, and 67% of that cost is paid by government. Even small improvements in diabetes monitoring can create big dividends. And then you have the Watch, for getting more services.

The Bottom Line on AAPL Stock

Chasing Apple when it’s high will still cost you money because the topping-out of the iPhone market will continue to drive negative headlines.

Instead accumulate it slowly, when everyone is dissing Apple, as in early May, and put it away. Once the gold mine is open, probably in two to three years, your patience will be rewarded, as it was with the iPhone.

The Apple Cloud has not yet begun to produce its rain.