There’s no shortage of loud distractions out there for investors right now, competing for our precious mental bandwidth. I’m bombarded with it every day, just like you are.
First, revenue drives earnings, and earnings drive stock prices – line up one, and the other is almost certain to follow.
Second – and as folks are quickly discovering in my new Straight Line Profits service – knowing how to determine whether a stock should be higher is absolutely critical to your investing success.
I know that sounds obvious, but you’d be amazed at how many investors don’t connect the two.
Apple (AAPL) – a company that’s already doubled our money – is a great example of what I’m talking about.
What Really Drives Stocks Higher
As I mentioned yesterday, coming into earnings this past week, Apple was almost universally hated by Wall Street sell-side analysts, many of whom were seemingly already writing Team Cook’s obituary.
You and I have talked about the exact opposite and why Apple was far more likely to move higher by virtue of the pivot it’s making into healthcare and the jaw-dropping margins associated with doing so.
We never got the chance to buy in at $125 or so, but folks who launched in at around $140 or so are now sitting pretty with Apple up 22% since tapping a low of $142.19 per share on Jan. 3.
Apple’s services margins are 60%, according to its latest report, at a time when it’s pushing into medical services that, according to the U.S. government, resulted in an eye-watering $3.7 trillion spent on healthcare in 2017.
Wall Street, still fixated on iPhones… iPads… and iDon’tKnowWhat, completely missed this massive, as-yet untapped mother lode of revenue.
Rest assured, it’s squarely in Tim Cook’s sights.
And ours, too.
That’s because harvesting even a tiny percentage of that $3.7 trillion – which is probably going to hit $4 trillion by the time 2018 numbers are tallied up – is a needle mover for Apple, a game changer for consumers, and the best news you’ve heard all day if you own Apple like we do.
You can do the math like I can. That’s as unstoppable an “Unstoppable Trend” as I can possibly imagine right now.
The key takeaway for investors is that Apple’s “true value” is much higher – higher than the $174 it’s trading at now, and certainly far higher than Wall Street would have you believe. I know it, and you know it (even if you haven’t jumped on board with Straight Line Profits yet).
Remember: Revenue drives earnings, and earnings drive profits, whether you’re talking about Apple, Becton Dickinson & Co. (NYSE: BDX), Boeing Corp. (NYSE: BA), Visa Inc. (NYSE: V), or any of the other “must-own” companies we talk about regularly.
It’s a very simple equation, and companies that “add up” are the ones you want to buy. Everything else is a risk you don’t want or need to take with your hard-earned money.
— Keith Fitz-Gerald
Source: Money Morning