Attention Apple Investors: Analysts You Don’t Know But Should

Every Apple (AAPL) investor is conditioned to expect a wild ride during Apple earnings calls. Because no one knows what to expect, you can’t put any faith in analysts’ prognostications; they almost always miss, and usually to the down-side. Yet every Apple quarterly earnings conference call follows the same pattern. Apple reports great numbers, the world goes nuts, shares skyrocket; then an Apple executive will invariably make a bearish remark, the world’s collective jaws drop, sparking an equally volatile selloff. It’s an emotional roller coaster.

After the call, the analysts run for cover, spinning into CYA mode, performing poetic revisionist interpretations of their prognostications, in an attempt save face. I’ll have to admit though, Apple is tight lipped, and it must be difficult to collect and analyze all the required information. But you would think that analysts and their deep pocketed firms, with the tremendous resources and contacts at their disposal, could do a better job providing guidance to the rest of us.

Why do we pay such credence to these professional analysts when they are so consistently wrong? I’m really tired of hearing quotes like, “much better than analysts expected,” or “analysts missed the boat.” You hardly ever hear a report like, “man the analysts nailed that one.” So, I have to ask the question, do we really need these professional analysts, especially when we have in our midst, a few very talented, independent Apple enthusiast that provide comprehensive and accurate earnings analysis for FREE?

Recently, Andy Zaky of the Bullish Cross Blog made the news with his excellent Apple Q3 earnings report. His report was recently featured on Seeking Alpha and mentioned on Ken Ray’s Mac OS Ken podcast. Andy provided a comprehensive treatise, taking into consideration a wide range of data points, market conditions, readily available public information, and intelligent and insightful analysis. Andy is usually on the bullish side, but his analysis is as good as any of the “professional” analysts. And Andy isn’t a spin-meister.

Then we have Deagol, a member of the MacObserver Apple Financial Board. Deagol’s analysis is remarkably accurate and comprehensive. It’s absolutely amazing the depth that he provides, not only for this fiscal quarter, but his past work and future guidance as well. You can find his research and analysis on StashBox. You can also search his name on AFB and find an excellent debate of the facts, figures between Deagol’s and other AFB members.

So, with analysts in the Wilderness like Andy and Deagol, who needs these so-called professionals? Quite frankly, I’ve had it up to here with some of these pros, because their personal biases and their employer agendas seem to taint there reporting. I believe analysts have way too much power, and go unchecked, with many people’s fortunes tied to their missteps. I propose a rating system for these “pro” analysts, and a special widget, so that every time they appear on the web, you should be able to hover over them or their work and get their handicap.

Disclosure: I hold a core position with AAPL. Although sometimes it's bigger, sometimes I pare it down based on market conditions.

Comments

[kbear2]

Amen.

[tcislands]

So it is. I quit already reading all that "pro" staff. I make my own mind and recently I am sure that Apple is on the very, very right way to success. Regars from Duesseldorf, Germany

[imthewiz]

As my grandmother would say "the're all a bunch of hooples"

Remember Abby Joseph Cohen prior to 2000? as an example. They do serve one usefull function. When they are all saying buy it's almost allways time to sell.

[bobthenoob]

you forgot Carl Howe, he is mostly correct about AAPL

[Zach Bass]

Then Carl should survive a rating system quite nicely. I like Carl's work by the way. I also like Gene Munster.

[Mac'em X]

Zach, great topic. Your suggestions will really make the prediction game more interesting for us investors!

[The Magic Twanger]

Great idea Zach!!! It's time that these KNUCKLEHEAD analysts own up to their calls. Show that they are nothing more than puppets for the firms that they work for!!! Their spreading of misinformation is as illegal as it gets but is just one more thing that the SEC turns a blind eye to......

[mollytjm]

Right on! and i also like Carl Rowe. it's so obvious when reading some of the pros that they don't even know Apple products, probably use only PC's and a Blackberry and are loyal to them either for $ or out of ignorance. Apple makes tons of money...the best retail space on the planet...has no debt and huge cash reserves. it would be nice to see those things reflected in other articles.

[artman1033]

Molly:
I like Carl Rowe also. I believe he has an iphone. I think Carl Howe has excellent analysis on AAPL.

[Paul Johnson]

Who are the analysts who have been consistently wrong about APPL? It's just, if not more, helpful to know who to avoid.

[optionsgirl]

This article is dead on. If you want to play appl, always be long the stock and buy some protective puts, at or near the money, 1-3 months out. It always works.

[Partners in Grime]

Great idea on the APPL analyst rating widget! What might they call it?

[FPPC]

Bravo! Well said. The ANALysts are as negative as the newspapers.

[will]

Screw the analysts. They haven't got Apple right in 5 years. 300 here we come.

[fatcat]

Optionsgirl,you are dead on,however I just play the puts and calls ...but lately it has been a harder play to call. I think your method is much better..

[Andy Zaky]

Thanks for the mention Zach. Deagol and I are discussing our earnings estimates at macobserver. Here's the link if anyone is interested:

www.macobserver.com/fo...

Cheers,
Andy

[hpe]

Optionsgirl,
You mentioned you like to long calls and protective puts. If you long both, the premiums do not justify the stock price movement. For example, the stock should move at least $12 to make a profit for July 08 options. Am I correct?

[BS Detector]

hpe: she said long the stock, not calls.

[David Lentz]

A similar strategy to optionsgirl's "buy the stock long and near-term puts as insurance" can be achieved by purchasing deep-in-the-money LEAPs for as far out as possible, and using the near-term puts as portfolio insurance.

You can get the same long-term capital gains with the LEAPs as the stock (although it's more volatile than the stock, so as a buy-and-hold strategy this can take a toll on one's guts), and the leverage is greatly increased.

The flaw in this scheme being a severe decline in the stock that lasts more than a year or two. Hopefully the odds of that happening with AAPL are fairly low (but they are never zero).

[dieuwer]

The Apple Bubble

P/E: 34
Appreciation: 2400%+ (compare with oil, 1400%+)
Signs of top: screaming people in front of apple stores

[John Scott]

Good post, Zach. It would be even better if you provided specific examples of the poor analysts in similar fashion to what you did with the good analysts.