Are Equity Analysts Worthwhile Listening to?
I have often heard that discretionary equity fund managers, on average, underperform market indices. The other group of prominent Wall Street professionals is equity analysts. Does this group do any better?
One way to check is to see if the price targets of equity analysts are a good indicator of future stock price movement. To select a sizeable (i.e., statistically significant) number of stocks that are well-followed by Wall Street, I find it convenient to use the 100 components of the Nasdaq 100, which includes both technology companies such as Microsoft, Intel, Cisco, Dell and Amgen, as well as non-technology names such as Costco, Starbucks, Staples, Apollo Group and Paccar.
Using analysts' consensus 1-year price target data from finance.yahoo.com, I calculate for each stock the targeted percentage price change based on today's stock price. After sorting the targeted percentage changes from high to low, I list below the stocks that equity analysts are expecting to rise the most (top 10) and the least (bottom 10). For reference I also provide the PEG ratio, whose denominator (estimated annual earnings growth rate over the next 5 years) is likewise driven by analysts' estimates:
Company (Ticker): Current Stock Price, Expected 1-Yr. % Price Change, PEG
BEST Expected Stock Performance:
JDS Uniphase (JDSU): 1.83, 47%, N/A
Sanmina-SCI (SANM): 5.97, 47%, 0.81
Career Education (CECO): 35.86, 45%, 0.85
IAC Interactive (IACI): 22.03, 44%, 1.55
Millennium Pharm. (MLNM): 8.96, 43%, N/A
ATI Technologies (ATYT): 17.69, 41%, 0.80
Juniper Networks (JNPR): 22.07, 41%, 1.75
Cisco Systems (CSCO): 17.47, 39%, 1.26
Symantec (SYMC): 22.18, 30%, 1.24
Dollar Tree Stores (DLTR): 25.58, 29%, 0.88
WORST Expected Stock Performance:
Level 3 Comm. (LVLT): 1.91, -48%, N/A
Patterson Companies (PDCO): 47.88, -17%, 1.66
Marvell Tech (MRVL): 37.23, -14%, 1.33
Pixar (PIXR): 90.11, -12%, 2.86
MCI (MCIP): 22.04, -12%, N/A
Whole Foods (WFMI): 101.82, -10%, 1.91
Apple Comp. (AAPL): 86.80, -2%, 2.10
K-Mart (KMRT): 100.50, 0%, 2.24
Electronic Arts (ERTS): 64.26, 0%, 1.69
QLogic (QLGC): 41.68, 2%, 1.90
Because it takes time for analysts to process new information and revise targets, there are certain cases (e.g., recent buyout activity driving MCI's stock price up) where this "publishing time lag" may create significant discrepancies between published consensus targets and the actual, real-time, as-yet-unpublished opinions of analysts. This adds some "noise" to our study; however, if any "edge" that analysts have through their insight into companies and stock prices is robust enough, it should shine through in the results of our study.
I will be tracking all 100 components of the Nasdaq 100 over the months ahead. As the year unfolds, our "experiment" will give us some insight into how seriously we should regard analysts' targets as we go about our investing. Should we listen to analysts or just press the ignore button? Please stay tuned as we attempt to answer this question during the upcoming year.
One way to check is to see if the price targets of equity analysts are a good indicator of future stock price movement. To select a sizeable (i.e., statistically significant) number of stocks that are well-followed by Wall Street, I find it convenient to use the 100 components of the Nasdaq 100, which includes both technology companies such as Microsoft, Intel, Cisco, Dell and Amgen, as well as non-technology names such as Costco, Starbucks, Staples, Apollo Group and Paccar.
Using analysts' consensus 1-year price target data from finance.yahoo.com, I calculate for each stock the targeted percentage price change based on today's stock price. After sorting the targeted percentage changes from high to low, I list below the stocks that equity analysts are expecting to rise the most (top 10) and the least (bottom 10). For reference I also provide the PEG ratio, whose denominator (estimated annual earnings growth rate over the next 5 years) is likewise driven by analysts' estimates:
Company (Ticker): Current Stock Price, Expected 1-Yr. % Price Change, PEG
BEST Expected Stock Performance:
JDS Uniphase (JDSU): 1.83, 47%, N/A
Sanmina-SCI (SANM): 5.97, 47%, 0.81
Career Education (CECO): 35.86, 45%, 0.85
IAC Interactive (IACI): 22.03, 44%, 1.55
Millennium Pharm. (MLNM): 8.96, 43%, N/A
ATI Technologies (ATYT): 17.69, 41%, 0.80
Juniper Networks (JNPR): 22.07, 41%, 1.75
Cisco Systems (CSCO): 17.47, 39%, 1.26
Symantec (SYMC): 22.18, 30%, 1.24
Dollar Tree Stores (DLTR): 25.58, 29%, 0.88
WORST Expected Stock Performance:
Level 3 Comm. (LVLT): 1.91, -48%, N/A
Patterson Companies (PDCO): 47.88, -17%, 1.66
Marvell Tech (MRVL): 37.23, -14%, 1.33
Pixar (PIXR): 90.11, -12%, 2.86
MCI (MCIP): 22.04, -12%, N/A
Whole Foods (WFMI): 101.82, -10%, 1.91
Apple Comp. (AAPL): 86.80, -2%, 2.10
K-Mart (KMRT): 100.50, 0%, 2.24
Electronic Arts (ERTS): 64.26, 0%, 1.69
QLogic (QLGC): 41.68, 2%, 1.90
Because it takes time for analysts to process new information and revise targets, there are certain cases (e.g., recent buyout activity driving MCI's stock price up) where this "publishing time lag" may create significant discrepancies between published consensus targets and the actual, real-time, as-yet-unpublished opinions of analysts. This adds some "noise" to our study; however, if any "edge" that analysts have through their insight into companies and stock prices is robust enough, it should shine through in the results of our study.
I will be tracking all 100 components of the Nasdaq 100 over the months ahead. As the year unfolds, our "experiment" will give us some insight into how seriously we should regard analysts' targets as we go about our investing. Should we listen to analysts or just press the ignore button? Please stay tuned as we attempt to answer this question during the upcoming year.
posted by Lloyd Sakazaki at 10:50 AM
1 Comments:
I would like to comment about Equity analysts worthwhile listening to. Their have been studies done on this sort of thing and the results are usually negative when most professional investors are bullist that is usually the time to use caution' and when they are bearish that is usually the time to think about buying.
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