“Look at Apple: analysts like Toni Sacconaghi at Bernstein and Katy Huberty at Morgan Stanley have outsized influence when it comes to driving its stock price with their reports,” Karl Kaufman writes for Forbes. “Before releasing its earnings report on May 1, Apple stock went down more than 3.5% on April 20 after Huberty predicted that iPhone sales would be more sluggish than expected and the stock would fall post-earnings.”
“As reported in Barron’s, Huberty’s note ‘offers more troubling fodder to an increasingly negative news cycle: The iPhone X isn’t the top-seller Apple anticipated, the company is struggling to expand its supply of OLED screens, and demand for its products is weaker in China,'” Kaufman writes. “Sacconaghi had lowered his iPhone shipments estimate from 52 million to 51 million. Bank of America Merrill Lynch analyst Wamsi Mohan wrote in a note to clients, ‘In our opinion, investors are already expecting a weaker CQ2, but the magnitude could be surprising to some.'”
“So what happened when Apple reported earnings on May 1?” Kaufman writes. “iPhone shipments were 52.2 million (led by the top-selling iPhone X), revenue in China increased by 21% and Apple announced a 16% dividend increase and a $100 billion share repurchase program.”
“Analysts are paid millions of dollars a year, their firms have the most expensive algorithms and predictive models and yet, they consistently miss the mark with their predictions. The market, however, responds to these reports as if they were gospel,” Kaufman writes. “Spencer Jakab, a former analyst for Credit Suisse and currently a writer for the Wall Street Journal, wrote about his former profession, ‘Analysts are, as a group at least, like the farmer who bolts the barn door after the horse has run into the meadow.'”
Read more in the full article here.
MacDailyNews Take: As we wrote back in January:
The following qualifications are required in order to be a financial analyst:
• Zilch; and
So, why do brokerage firms employ analysts? Because brokerage firms make their money on commissions and fees. In other words, the act of charging investors to buy/sell securities. Analysts recommend buying or selling based on scant evidence, misreading evidence, wild guesses, and/or coin flips. Some even – GASP! – lie.
The few good analysts actually listen, realize they never have all of the information, and actually use some math to try to make accurate calls based on the paltry information they do have at their disposal. Most analysts exist to create churn – buying and selling – in order to generate commissions and fees for the brokerage houses that employ them. The “business news” outlets treat their pronouncements and “concerns” with much seriousness and deep consideration, as required by every decent charade that involves a monetary exchange.
Most of the “Apple analysts” in the world couldn’t analyze their way out of a wet paper bag, much less accurately predict iPhone supply and demand.
[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]