What Apple Investors Should Be Watching

Apple (AAPL 0.64%) is coming off a topsy-turvy year during which it grew its top line only 6% annually. But investors should be excited about its most recent quarterly performance and what the iPhone giant has up its sleeve. On a Fool Live episode recorded on March 3, Fool contributors Brian Withers and Matt Frankel discuss why this massive tech company could become even bigger in the years ahead.

Matthew Frankel: Brian, what is Apple doing these days?

Brian Withers: Apple had an amazing quarter. If you ask Tim Cook, who is the CEO, [and] filled the shoes of Steve Jobs after he left. Tim Cook says that he wants Apple to be known, their greatest contribution to be in health and wellness, and it's really been saying that for several years now. When they introduced the Apple Watch Series 6 in the fall, they said "the future of health is on your wrist" and it's just really starting to pay off.

For a while now, they've had this research app which will allow universities and medical schools and whatnot to engage patients and volunteers to participate in research studies. Think about how research studies used to be done. People would sign up, you might get an email, and then you have to fill out paperwork, and they say track your blood pressure three times a day and people would forget it and they would write it down, and they might even cheat and write something else down. If they had to track their diet or their stress levels, it would just be a pen and paper and somebody's opinion.

But now with the iPhone and your watch, this hearing study that they're doing with the University of Michigan is running. They're tracking thousands of users along with the noise exposure and providing real-time details to researchers at a much lower cost. The studies can be larger, they can be more informative, and have more data. In fact, the University of Michigan found that as we started to work from home, the noise exposure that people were getting was like a third of what it was when you're involved in commutes and workplace, stuff like that. That's a really exciting area. As more people want to get involved with these research studies, it may continue to push sales of the devices.

But they just had a bang [up], they've just had a massive, massive quarter. They were coming off their fiscal year 2020, which ended in September at a six percent full-year year-over-year revenue growth, and the fourth quarter which ended in the end of December, 21 percent growth for this just massive trillion-dollar-plus market cap company. It's just amazing.

Across-the-board, iPhones up 17 percent, Macs up 21 percent, iPads 41 percent, wearables 30 percent, and their services business, this is something that I'm going to continue to watch, was 16 billion in the quarter. So [a] $64 billion business on the services alone growing at 24 percent a year. That's just amazing.

Earnings per share, it's just a cash machine up 34 percent. [laughs] And this [performance] was with not all the Apple stores were even open. March 1st, they opened all our Apple stores. So look for this to even pick up as we go into this year. But they're not giving specific guidance either they're providing directional insights and all that kind of stuff. And they said "total company revenue will be lead growth will accelerate on a year-over-year basis and an aggregate following typical seasonality on sequential basis."

This is something, Matt, that I actually really like, is that it seems like companies, for sure during COVID said we're not giving guidance because we don't know what the heck's going on. [A] Plus there. And then now they're coming out of it and saying, "You know what, we don't really need to give guidance anymore." And I actually like that a lot because it's frustrating to analyst and whatnot, but for long-term investors, the quarter-to-quarter gyrations aren't important as really the business strategies and how they're executing against this.

What's to watch? There's so many exciting things to watch about Apple and its cash flow engine and just continuing to expand on its hardware-software ecosystem. I've been watching a little bit of the news on this car rumor thing, but it's on-again, off-again. If it even comes to fruition, it's at least in 2024. Tesla doesn't have to fear Apple just yet, but that's just some of the optionality that they have was such a tremendous ecosystem and cash in the pocket.

Matthew Frankel: I think investors are really discounting just how much potential Apple has in areas like healthcare and cars. Three big reasons. One, they have tons of capital to invest. If they want to spend $100 billion to design a perfect car, they could do it if they really wanted to.

They have the stickiest customer base of any company I've ever heard. People will buy ahead product just because it has Apple on it, especially if they have other products because they are so compatible with each other and not so much with other devices.

They also have insane pricing power. We think of cars as just not a high-margin business. I mentioned General Motors trades at less than one-time sales because it's not a high-margin business. It's very capital investment. Apple can have a higher markup on their eventual car than any other automobile manufacturer in the world. People will pay it, because it's an Apple product and it will pair well with all their other things. So it is the same with health devices for that matter. So I think Apple has a ton of potential in all of those areas.

I don't even know how many trillions [of market cap], I think it's about two trillion right now. But I think that could be half of what their potential is over the next few years.

Brian Withers: Yeah, they're one of the best-run companies in the world. Hands down, period.