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Apple Stock: Watch Where the Next Trillion Comes From

Dana Blankenhorn

Today, Apple (NASDAQ:AAPL) stands alone as the only publicly traded $1 trillion company on the planet. What can CEO Tim Cook do for an encore? How about transforming health care?

Since becoming CEO in 2011, Tim Cook has stepped out of co-founder Steve Jobs’ shadow in several ways. He shared Apple stock’s gains with shareholders, creating a dividend, a stock split and buybacks. He has built a network of cloud data centers, making Apple the last of the five global “Cloud Czars”. That has led to a boom in service revenue, now the company’s second-largest business.

All these moves won applause from Wall Street. One did not. That was the launch of the Apple Watch in 2015. But as Apple prepares its annual new product roll-out tomorrow, it’s clear the Apple Watch will be the star of the show.

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This Watch Saves Lives

This will be the fourth edition of the Watch, and reporters are expecting big things. A software update has already brought out a walkie-talkie mode, fitness improvements and the ability to play audio from third party apps.

There are rumors of new digital buttons mimicking the feedback you used to get from mechanical devices, support for the Siri voice interface, better batteries, sleep tracking and new health sensors.

It’s that last which is the key. Cook has always seen the Watch as transformative in health care, creating the kind of “killer apps” I wrote about early in this century as Always-On technologies. But it’s not all hype anymore.

An old ZDNet colleague, Jason Perlow, got his Watch as a lark early this year, signed on for an Apple health check and learned he has atrial fibrillation, an irregular heart rhythm that can lead to stroke. He’d had it for years, but it had been undiagnosed until the Watch, which tracks heartbeats constantly — and the study found it. 

It reminded me of something I wrote at the late Corante site after my favorite journalism teacher, Richard Schwarzlose, passed away. He had a heart attack riding his bike and I suggested that a “killer app” could have found markers for that attack beforehand, saving his life.

The real “killer app” for the Watch would be detection of diabetes. The Watch isn’t quite there yet, but it’s getting close, working with third-party devices. 

The Watch is already on the FDA’s “fast track”  to be approved as a health device , despite industry skepticism. Custom chips could even help with weight loss. Once it wins device approval it could open-up huge markets, with corporations buying them in bulk for key employees and, possibly, insurers and Medicare paying for them.

That, and payments for the services resulting from using the data as was done with my friend Jason, is the Holy Grail Cook has been working toward. If he gets there, the Watch could become as big as the iPhone for Apple stock.

The Bottom Line on Apple Stock

The iPhone is a mature product, the Macintosh is well past its prime, and service revenue growth is going to decline for Apple.

Seen from that perspective, Apple stock is expensive, with a price-to-earnings multiple of 20, a yield of just 1.3%, and a stock chart getting that lean and hungry, head and shoulders look — the one that sends technicians running for the doors.

But the Watch is already crushing competitors, with Fitbit (NYSE:FIT) now worth under $1.5 billion, Samsung Electronics (OTCMKTS:SSNLF) years behind and Alphabet (NASDAQ:GOOGL) just now starting down a road Cook has been on for nearly five years. 

If you want to know where Apple stock’s next trillion dollar in market cap is coming from, this is it. When the technicians and skeptics are done pounding this stock, I will look to buy it.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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