Citi Analysts get it wrong (again) on Apple

On December 3rd I wrote about the need for caution when evaluating investments based on analyst recommendations (Why Analyst Recommendations Must Be Viewed In Context).  In this post I cited the November 27th recommendation of Apple by Citi as a case in point.  On the day of this recommendation, Apple’s shares closed at $580.  Citi recommended the stock with a $675 target and a buy recommendation.  Today, just 20 days later, and after the stock has fallen over 80 points, Citi removed their recommendation, placing a “neutral” rating on the stock, and lowering their price target by $100 per share, to $575.  Really??

Keep in mind that Citi has not 1, not 2, but 3 full-time analysts following this stock.  After all of their careful analysis, they believed so strongly in the company (on November 27th) that they recommended it to all of their clients and anyone and everyone else that would listen.  How is it possible, after only 20 days, that this careful analysis could be so flawed, as to warrant a $100 point drop in their price target and a change from a buy recommendation to a neutral?

The answer should be obvious – their “analysis” was not so careful.  The only real surprise for me is that investors actually pay any attention at all to analysts these days.  After all, regulators ran all of the talented analysts out of the brokerage houses years ago, making it next to impossible for them to earn any real money.  The good ones have since gone on to greener pastures, with hedge funds and private equity firms where they can earn.  What is left is inexperienced, unskilled, hacks (at best).  Certainly no one that any investor who hopes to earn a reasonable return should listen to when making investment decisions.

Please keep in mind that Citi’s $575 target is $5 per share below the low trade on the day they recommended Apple (November 27th).  Why recommend the stock at all then??  This is a clear example of why investors should never take any analyst recommendation at face value.  Any recommendation must be evaluated in the context of the economic and financial market environment within which that recommendation has been made.  Only if the investor is satisfied that the overall environment is favorable, and the fundamentals and technicals for the stock are acceptable, should the investor even consider adding the position to their portfolio.

In the case of Apple, I would submit that, once again, Citi has gotten it dead wrong.  The stock is not a neutral it is a sell.  The price target should not be $575, it should be $400.  While Apple is highly volatile, and could bounce a bit, it is headed down, along with the market.  We need an answer to the fiscal cliff debate, which we should get fairly soon.  Regardless of that answer (regardless of what Congress and the President come up with), stocks are overvalued, given the challenges we face, and are not a buy at current levels.  Once we get a reasonable correction, down to around 1,200 on the S&P 500, stocks will look much more attractive.


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