Apple’s 2021 Upside Should Be More Modest, But Don’t Bet Against It

Apple (NASDAQ:AAPL), the largest U.S. company by market capitalization, continues to impress, but following a 67.66% gain through the first 11-plus months of this year, AAPL stock could be in for a more modest showing in 2021.

A close-up shot of different Apple (AAPL) iPhones in front of a purple background.
Source: Hadrian /

That doesn’t mean investors should eschew the iPhone maker in the new year. It’s more about adjusting expectations for a company with market capitalization of $2.082 trillion and a stock that’s tripled (on a split-adjusted basis) in two years. As of Nov. 26, when Apple was up “just” 60% this year, the stock represented 86.7 points, or 21.4%, of the S&P 500’s year-to-date gain. That’s 450 basis points ahead of Amazon (NASDAQ:AMZN), the next biggest driver of the index’s 2020 upside.

Looking toward next year, AAPL stock has an immediate potential catalyst in the form of its fiscal first-quarter earnings report. Given that the fiscal fourth-quarter numbers were delivered in October, the next report should arrive in late January or early February. This will be the first full report accounting for holiday shopping and the recently launched 5G iPhones.

Guidance wasn’t offered because Apple is resisting doing so this year due to the novel coronavirus pandemic, but CEO Tim Cook indicated revenue should climb in the December quarter, helped by the aforementioned 5G iPhone debut.

AAPL Stock: More Than an iPhone Story

The iPhone is Apple’s most recognizable product. As investors familiar with the stock and tech aficionados know, the California-based company has myriad other growth drivers. But it’s been awhile since that growth roster included hardware.

That’s changing thanks to the recent debuts of the MacBook Air, MacBook Pro, and Mac mini. Broadly speaking, reviews for the new Macs are excellent and that’s relevant to consumers and investors alike. For starters, these new models are more cost-effective than legacy Macs. Second, these are the first Apple computers featuring the company’s homegrown, new M1 chip.

Third, reviews indicate the new Macs aren’t sacrificing performance relative to pricier iterations of the computer, which still run on Intel (NASDAQ:INTC) semiconductors. The first run for Apple-produced chips looks like a success because Wall Street is forecasting fiscal 2021 Mac sales of $30.12 billion, up from $28.62 billion in fiscal 2020.

Then there’s the services business, which includes consumer-facing lines such iTunes, Apple News and AppleTV. Apple is moving toward a subscription-based model for services. This move is paying dividends as services revenue jumped 16% in the most recently completed quarter.

“Apple now has over 585 million paid subscribers to its various services, up 135 million from a year ago, and the firm expects 600 million subs by Dec 2020,” notes Morningstar.

Services are unlikely to become a top line driver on par with the iPhone or wearables. But services are a growth frontier, one that comes with steady, recurring revenue.

Plenty of Enthusiasm

It’s rare for analysts covering Apple to wax bearish on the company and with 2021 right around the corner, most are enthusiastic about the company’s prospects in the new year with some price targets residing as high as $150. That implies upside of about 22% from the Dec. 3 close.

For investors, it’s worth remembering that Apple has a history of outperforming analysts’ expectations and after the company emerges from difficult scenarios. It’s grappling with one today: Covid-19.

Those trends don’t always repeat. But a case can be made that owing to the pandemic, Wall Street may be too gloomy on iPhone sales through the first half of 2021. Mac forecasts may also be too conservative. Should Apple top those estimates, AAPL stock could win again in 2021 even if it doesn’t return another 67%.

On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Todd Shriber has been an InvestorPlace contributor since 2014.

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