Why I’m Done Listening to the Apple Analysts
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Unlike most people, I don’t own Apple (NASDAQ: AAPL) stock, though I’ve wanted to since I sold my shares for $100 years ago. As shares recently started to come off their record highs, I thought I might finally get somewhat of a buying opportunity. I read in several places that their next stop was all the way down to $500 a share while many analysts were predicting an earnings miss and more pressure on the stock.
What’s always interested me about Apple is that they don’t really care what analysts are saying about their company. They just make great products and consumers keep buying them. This past quarter was more of the same with revenue up 59% to $39.2 billion and net income up 94% to $11.6 billion to $12.30 a share. The analysts on the other hand had estimates of $36.6 billion in revenue and just $10 per share in profits blowing past analysts estimates by 7% on the revenue side and an astounding 23% on the earnings. How do so many smart people miss so badly?
In a word, rumors. More broadly rumblings that iPhone activations at AT& T (NYSE: T) and Verizon (NYSE: VZ) were being reported lower than anticipated, which would mean lower iPhone sales at Apple. While the analysts were trying to do their best to stay ahead of the market they were working with incomplete data. It was the international sales that drove the quarter as they now make up nearly 75% of iPhone shares, up from 63% last quarter. That was good for an extra five million iPhones being sold in the quarter that analysts didn’t see coming.
While I’d love to blame the analysts for my not owning Apple, my problem is more in my own psychology in that I feel like I’ve missed so much upside I’m too late to make money. This analysis paralysis of sorts comes from my knowledge of the company and its price history. When I don't have a history with a company, I tend to not suffer from analysis paralysis. For example, I had no problem buying shares of Microsoft (NASDAQ: MSFT) a few years back even though it had made many of its early investors rich because I had no history with the company. It didn’t matter to me that it had grown into a quarter of a trillion dollar company, what mattered was that it was cheap on an earnings basis, it had started paying a dividend and was just raking in the cash. At times I can be my own worst analyst as I start to look short term or worse, I start to anchor and miss the true long term trend.
Investors sometimes need to take a step back from what the analysts are saying and just take a look at how a company is performing. Analysts typically look at things over the next quarter or two, though maybe they have a twelve month price target, but that’s it. They key to being a great investor is to do just that, invest. Not for tomorrow’s earnings report but for the next product cycle. Don't listen to that analyst in your head that's looking short term, listen to the investor that's looking past the next decade.
When I look at Apple I need not see the momentum play or the media darling but the company with over $100 billion in the bank and a low teens earnings multiple whose growth shows no signs of slowing down. Apple might not double again for some time but it should have no problem beating the market over the next few years just as it had no problem beating analysts nearly every quarter for a long as I can remember. I'm done listening to the short sighted analyst in my head, instead I am buying shares of Apple as soon as trading rules allow.
latimerburned owns shares of Verizon Communications and has Bull Call Spreads on Apple and Microsoft and a Synthetic Covered Call on Microsoft. The Motley Fool owns shares of Apple, and Microsoft. Motley Fool newsletter services recommend Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.