Evidence for NOT Listening to Equity Analysts
Back in February, I posted consensus one-year price targets of equity analysts for individual stocks in the Nasdaq 100. Today I resume this study to see if the analysts' targets have had any predictive value.
The table below compares equity analysts' price targets from February with the actual resulting stock price performance over the past nine months:
Company (Ticker): Expected % Price Change, Actual % Price Change
(For the approx. 9-month period from 18-Feb-05 to 04-Nov-05)
Stocks Expected to Perform BEST:
JDS Uniphase (JDSU): 31%, 28%
Sanmina-SCI (SANM): 31%, -26%
Career Education (CECO): 30%, -6%
IAC Interactive (IACI): 30%, -39%
Millennium Pharm. (MLNM): 29%, 9%
ATI Technologies (ATYT): 28%, -12%
Juniper Networks (JNPR): 28%, 9%
Cisco Systems (CSCO): 26%, 2%
Symantec (SYMC): 20%, -16%
Dollar Tree Stores (DLTR): 20%, -9%
Stocks Expected to Perform WORST:
Level 3 Comm. (LVLT): -37%, 53%
Patterson Companies (PDCO): -12%, -13%
Marvell Tech (MRVL): -10%, 31%
Pixar (PIXR): -8%, 20%
MCI (MCIP): -8%, -10%
Whole Foods (WFMI): -7%, 47%
Apple Comp. (AAPL): -1%, 41%
K-Mart (KMRT): 0%, 23%
Electronic Arts (ERTS): 0%, -7%
QLogic (QLGC): 1%, -26%
Taking averages over the 10 stocks in each subgroup, we have:
Stocks Expected to Perform BEST:
EXPECTED average price change: 27%
ACTUAL average price change: -6%
Stocks Expected to Perform WORST:
EXPECTED average price change: -8%
ACTUAL average price change: 16%
If an investor had bought the equity analysts' top 10 picks (as gauged by highest expected one-year price change), he would have lost 6%. On the other hand, if the investor had adopted a contrarian view and bought the 10 stocks expected by equity analysts to perform worst, he would have gained 16%! In other words, over the past nine months the equity analysts' price targets have been a contra-indicator of actual performance. (To verify that this result holds more broadly, I have applied the same analysis to all 100 stocks in the Nasdaq 100 and found the correlation between expected and actual price performance to be -0.21.)
These results, indicating the absence of clairvoyant stock picking prowess among equity analysts, are perhaps as anticipated, since, after all, if equity analysts really were good stock pickers, they would all be investors rather than analysts, right? Anyway, for what it's worth, if anyone has interest in seeing current consensus targets, either to side with the analysts or to take a contranian view, here they are:
(Based on 04-Nov-2005 closing prices)
Company (Ticker): Current Stock Price, Expected 1-Year % Price Change
Stocks Expected to Perform BEST:
Flextronics (FLEX): 9.40, 46%
Wynn Resorts (WYNN): 49.94, 42%
Comcast (CMCSA): 27.14, 40%
Symantec (SYMC): 18.63, 37%
Sears (SHLD): 169.75, 37%
Echostar (DISH): 26.66, 36%
XM Satellite (XMSR): 29.90, 36%
Career Education (CECO): 33.80, 33%
NTL Inc. (NTLI): 59.03, 32%
Research In Motion (RIMM): 62.90, 31%
Stocks Expected to Perform WORST:
Level 3 Comm. (LVLT): 2.92, -66%
JDS Uniphase (JDSU): 2.35, -21%
Sandisk (SNDK): 65.14, -17%
Express Scripts (ESRX): 79.31, -16%
Whole Foods (WFMI): 149.93, -13%
Pixar (PIXR): 54.11, -10%
Siebel Systems (SEBL): 10.42, -9%
Apple Comp. (AAPL): 61.15, -6%
Expeditors International (EXPD): 66.78, -6%
Costco (COST): 49.12, -5%
I close with a couple of observations:
1. Versus nine months ago, the analysts are showing a noticeable degree of continuity of opinion: Symantec and Career Education remain among the top-10 favorites of the analysts, while Level 3 Comm., Whole Foods, Pixar and Apple Comp. remain in the bottom-10 dogpile. Interestingly, however, JDS Uniphase and Sears (was K-Mart) have flip-flopped between favorites list and dogpile;
2. Among the particular stocks mentioned in paragraph 1 above, the only one whose price movement the analysts "predicted" correctly ("guessed" is probably the more suitable term here!) was JDS Uniphase (31% expected vs. 28% actual). For all of the other names, the analysts didn't even get the direction of price movement correct!
I'll try to remember to have look in about a year's time to see how the equity analysts do this time around . . . .
The table below compares equity analysts' price targets from February with the actual resulting stock price performance over the past nine months:
Company (Ticker): Expected % Price Change, Actual % Price Change
(For the approx. 9-month period from 18-Feb-05 to 04-Nov-05)
Stocks Expected to Perform BEST:
JDS Uniphase (JDSU): 31%, 28%
Sanmina-SCI (SANM): 31%, -26%
Career Education (CECO): 30%, -6%
IAC Interactive (IACI): 30%, -39%
Millennium Pharm. (MLNM): 29%, 9%
ATI Technologies (ATYT): 28%, -12%
Juniper Networks (JNPR): 28%, 9%
Cisco Systems (CSCO): 26%, 2%
Symantec (SYMC): 20%, -16%
Dollar Tree Stores (DLTR): 20%, -9%
Stocks Expected to Perform WORST:
Level 3 Comm. (LVLT): -37%, 53%
Patterson Companies (PDCO): -12%, -13%
Marvell Tech (MRVL): -10%, 31%
Pixar (PIXR): -8%, 20%
MCI (MCIP): -8%, -10%
Whole Foods (WFMI): -7%, 47%
Apple Comp. (AAPL): -1%, 41%
K-Mart (KMRT): 0%, 23%
Electronic Arts (ERTS): 0%, -7%
QLogic (QLGC): 1%, -26%
Taking averages over the 10 stocks in each subgroup, we have:
Stocks Expected to Perform BEST:
EXPECTED average price change: 27%
ACTUAL average price change: -6%
Stocks Expected to Perform WORST:
EXPECTED average price change: -8%
ACTUAL average price change: 16%
If an investor had bought the equity analysts' top 10 picks (as gauged by highest expected one-year price change), he would have lost 6%. On the other hand, if the investor had adopted a contrarian view and bought the 10 stocks expected by equity analysts to perform worst, he would have gained 16%! In other words, over the past nine months the equity analysts' price targets have been a contra-indicator of actual performance. (To verify that this result holds more broadly, I have applied the same analysis to all 100 stocks in the Nasdaq 100 and found the correlation between expected and actual price performance to be -0.21.)
These results, indicating the absence of clairvoyant stock picking prowess among equity analysts, are perhaps as anticipated, since, after all, if equity analysts really were good stock pickers, they would all be investors rather than analysts, right? Anyway, for what it's worth, if anyone has interest in seeing current consensus targets, either to side with the analysts or to take a contranian view, here they are:
(Based on 04-Nov-2005 closing prices)
Company (Ticker): Current Stock Price, Expected 1-Year % Price Change
Stocks Expected to Perform BEST:
Flextronics (FLEX): 9.40, 46%
Wynn Resorts (WYNN): 49.94, 42%
Comcast (CMCSA): 27.14, 40%
Symantec (SYMC): 18.63, 37%
Sears (SHLD): 169.75, 37%
Echostar (DISH): 26.66, 36%
XM Satellite (XMSR): 29.90, 36%
Career Education (CECO): 33.80, 33%
NTL Inc. (NTLI): 59.03, 32%
Research In Motion (RIMM): 62.90, 31%
Stocks Expected to Perform WORST:
Level 3 Comm. (LVLT): 2.92, -66%
JDS Uniphase (JDSU): 2.35, -21%
Sandisk (SNDK): 65.14, -17%
Express Scripts (ESRX): 79.31, -16%
Whole Foods (WFMI): 149.93, -13%
Pixar (PIXR): 54.11, -10%
Siebel Systems (SEBL): 10.42, -9%
Apple Comp. (AAPL): 61.15, -6%
Expeditors International (EXPD): 66.78, -6%
Costco (COST): 49.12, -5%
I close with a couple of observations:
1. Versus nine months ago, the analysts are showing a noticeable degree of continuity of opinion: Symantec and Career Education remain among the top-10 favorites of the analysts, while Level 3 Comm., Whole Foods, Pixar and Apple Comp. remain in the bottom-10 dogpile. Interestingly, however, JDS Uniphase and Sears (was K-Mart) have flip-flopped between favorites list and dogpile;
2. Among the particular stocks mentioned in paragraph 1 above, the only one whose price movement the analysts "predicted" correctly ("guessed" is probably the more suitable term here!) was JDS Uniphase (31% expected vs. 28% actual). For all of the other names, the analysts didn't even get the direction of price movement correct!
I'll try to remember to have look in about a year's time to see how the equity analysts do this time around . . . .
posted by Lloyd Sakazaki at 9:09 PM
2 Comments:
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