Alex Shek from Benzinga has reviewed four stocks that most analysts love. He makes an interesting point that when all analysts point to the same stock, they take little risk in putting their reputation on the line. If all of the analysts are positive and that turns out to be wrong, then they all move together. At the same time, a stock loved by almost all of its analysts also may be an obvious strong buying opportunity.
Here are the four stocks Shek discussed:
- Fossil (FOSL) -- a producer of watches and other fashion accessories.
- Apache (APA) -- an independent energy company.
- Google (GOOG) -- is there anybody who doesn't know what Google does?
- Apple (AAPL) -- is Apple more or less famous than Google?
I am a little bit queasy about this selection of stocks. I can understand that high-end product companies can do well in tough times, and energy is always of interest. Google and Apple are the focus of endless speculation, but I think I would want to pick one, not both. I have said previously that I prefer Zagg (ZAGG) to Apple because it produces accessories for smartphones -- i.e., iPhone and Android devices -- which offers greater diversification. I think that Google has a more sustainable advantage than Apple, but I am sure that plenty of people will disagree with me.
It will be interesting to see how this selection performs against our dividend-bearing ETF benchmark portfolio:
| Asset | Fund in this portfolio |
|---|---|
| REAL ESTATE | (ICF) iShares Cohen & Steers Realty Majors |
| CASH | CASH |
| FIXED INCOME | (TIP) iShares Barclays TIPS Bond |
| Emerging Market | (VWO) Vanguard Emerging Markets Stock ETF |
| US EQUITY | (DVY) iShares Dow Jones Select Dividend Index |
| US EQUITY | (VIG) Vanguard Dividend Appreciation ETF |
| INTERNATIONAL EQUITY | (IDV) iShares Dow Jones Intl Select Div Idx |
| High Yield Bond | (HYG) iShares iBoxx $ High Yield Corporate Bd |
| INTERNATIONAL BONDS | (EMB) iShares JPMorgan USD Emerg Markets Bond |
- Four Stocks Most Analysts Love -- Total of $10,000 invested equally in each stock.
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes).
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum).
Portfolio Performance Comparison:
| Portfolio/Fund Name | YTD Return | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|
| Four Stocks Most Analysts Love | 27% | 40% | 144% | 47% | 191% | 27% | 80% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 2% | 7% | 69% | 14% | 117% | 8% | 59% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 6% | 2% | 18% | 12% | 102% | 2% | 8% |
| AAPL | 40% | 63% | 330% | 64% | 288% | 40% | 118% |
| APA | -27% | -26% | 14% | 16% | 34% | 6% | 21% |
| GOOG | 7% | 14% | 21% | 15% | 91% | 5% | 13% |
| FOSL | -1% | -16% | -14% | 57% | 21% |
I thought that I would show both the performance of the selection and the individual stocks. The problem with simulations in this case is that it is dominated by Apple, and it is unlikely that it will continue to grow at the astounding rate of the past couple of years. If I take Apple out, I don't really like what I see with the rest. I still believe that Google will be a good long-term stock because I believe in its business. I don't think that Apache or Fossil represent the best of breed in their respective fields.
Five-Year Chart
Yes, the returns of this selection look good compared to the diversified ETF portfolio, but it is too dependent on Apple and I don't know where that will go. Even though the majority of analysts like this selection, I am going to pass as I think there are better alternatives.
Disclaimer: We do not have any business relationship with the company or companies mentioned in this article. We do not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I am long ZAGG.
