Why Wall Street Analysts Should Be Ignored: Apple Case Study
First, in the spirit of full disclosure, I am long AAPL and have been for 2.5 years. This is not an attempt to manipulate the price in any way. I’m still a huge AAPL bull and I will continue to be one, but this rant is dedicated to the “experts” out there on Wall Street telling us what we should and should not invest in and why.
To illustrate my point of why these “experts” should be ignored, I’ll use Citigroup’s star analysts (who shall remain unnamed) as an example. Citi has been covering AAPL for less than 4 months and the movement in their projections, while absurd, is the least absurd I could find. Citi initiated coverage in late November and pegged AAPL with a $675 price target and a BUY rating. At this point, AAPL had fallen from an all time high of $705.07 to $575.90. Reasonable call, I will give them that. Then, however, less than a month later, the target was slashed by $100 to $575. AAPL was trading at $508.93. Then in late January, the target was cut again, this time to $500. AAPL was trading at $460. Now, as we’ve all read, Citi has cut the target again to $480. AAPL opened at $434.51.
Now, I will not devote any time here making my case for why Apple’s current valuation is offensive…maybe another time. What I do want to point out is how silly these analyst targets are. Simply put, Citi re-stated the obvious in their calls: the price of Apple is lower than what it was a month ago. Funny, I always thought price targets were supposed to precede actual prices. Each time they adjusted their targets (every month), they were late to the game. Investors had already lost 27% before Citi reduced their target to $575. Investors then lost another 10% before the target was cut again. And the trend continued. Ironically, every time Citi lowered their expectations, the price was driven down further. When Apple’s value is fully realized, and this will happen, and AAPL jumps again, I have a hunch that Citi will reverse course and begin raising targets to keep up with the price. However, once again, the targets will not precede the actual price. I’ll close with a simple analogy: following these analysts is similar to following a weatherman who tells you it’s going to rain…2 hours after the rain began.