Apple Inc. (AAPL): Should You Follow Analysts’ Predictions?

Notorious Austrian-British economist Friedrich Hayek in his book “The road to Serfdom” said that “we can in a measure learn from the past to avoid a repetition of the same process”. We can, in a way, attribute this quote to the investing and take a look back at some predictions regarding different companies and see if they materialized and what we can learn from them. In this article we are going to focus on Apple Inc. (NASDAQ:AAPL). One year ago, Citigroup analyst Jim Suva discussed the stock on CNBC and provided his rating and price target, which didn’t exactly materialize, but rather the stock turned the opposite direction. This shows the difficulty when it comes to predicting a stock’s move, even if the horizon is narrowed to just one year. It is particularly hard to predict the near-term performance of large-cap stocks, which are generally more competitively priced. Therefore, in this article we are going to do a throwback to the last year and analyze Apple Inc. (NASDAQ:AAPL)’s performance over the past 52-weeks comparing it with predictions of analysts and investors along the way.

The idea is that often predictions go wrong, which can substantially affect the returns of many investors that relied on those predictions. An example is BlackBerry Ltd (NASDAQ:BBRY), which in 2007 was trading above the $200 per share mark only to slide to $50 a year later and currently it is a stock that remains mostly overlooked. Investors often assume that current trends may go indefinitely, which is why many hedge funds remain bullish on Apple, focusing on the present performance and often ignoring the long-term horizon. A year ago, Suva rated the stock as a ‘Buy’ and had a 12-month price target of $145 per share.

What’s also interesting to point out is that Suva said that Apple Inc. (NASDAQ:AAPL) was in Citi’s Focus List, which included its “highest conviction stock ideas”. The investor also said that Apple was going to beat the estimates, which would move the stock higher and while the company indeed posted better-than-expected results for the following quarters, the stock still kept trading lower. As we look back, we can see that the stock never hit that mark and has lost 13% over the last 52-weeks. In October 2015, Suva reiterated the ‘Buy’ rating and $145 price target on Apple, but removed the stock from the Focus List, citing “near-term conviction in other stocks”. In January, the analyst cut the price target to $130, maintaining the ‘Buy’ rating.

Suva is not the only analyst that got it wrong predicting Apple’s future stock performance, most analysts that cover the stock cut their price targets this year, although most of them maintained ‘Buy’ and ‘Outperform’ ratings.