Ignore Wall Street Analysts — Here’s Why
It’s great fodder for mainstream news outlets.
An analyst on Wall Street upgrades or downgrades a stock.
If you are on the same side as the analyst, it’s great news.
But, when you are on the wrong side, you can easily see the reason behind the downgrade doesn’t mean squat.
Wall Street analysts get paid to cover stocks. But they’re not fortune tellers.
They work at desks in corporate offices. If their prediction is wrong — if the stock goes against their predictions, whether it’s higher or lower — they get bosses breathing down their necks just like the rest of us. Then, they issue a new prediction about where the stock is headed.
We are not Wall Street analysts here. Our goal is simple. To make you money.
And our paychecks are not tied to any firm on Wall Street, so we are free to follow the real data to profit from where a stock is headed.
Today, I’ll break down the recent analyst downgrade on Micron Technology Inc. (Nasdaq: MU), a major tech company. And I’ll show you how the analyst has simply got it wrong this time.
Before we get into the analyst downgrade, I recorded a new Bank It or Tank It video on Micron.
The company is a popular stock in the semiconductor sector thanks to the growth of the tech industry. In my video, I determine if this is a stock you want to bank on going higher or if it is set to tank and go lower.
Watch my latest video here…
Hey, this is Chad Shoop with Automatic Profits Alert. If you’re new to my channel, click here to subscribe. I post new videos weekly, giving my take on the markets, major stocks and key levels to watch. In today’s video, I break down Micron Technology, the semiconductor stock. I don’t care much about the news headlines. Instead, we dive into the details. I look at the fundamentals, sentiment and technicalities to determine if this is a stock I believe is going higher or lower over the next twelve months.
Micron is a popular tech stock because of the devices its products go into. It’s everything from computers and smartphones, to virtual reality and self-driving cars. All these technologies rely on insanely fast signals between all of their components. Micron makes the memory chips that make all of that possible.
So while the company benefits from the global tech revolution, it’s not trying to make a self-driving car.
Instead, Micron’s chips are the guts inside the tech that goes into the car, which will help allow major advances in technology.
That makes Micron much less of a risk than the company making the self-driving car. Micron isn’t inventing a whole new technology with its business. It is just creating the parts that will go into these revolutions. And Micron will still benefit as that new technology becomes more widespread.
As 5G speeds are rolled out across the country, these devices will need even more memory. The computer processes can simply do more with faster internet speeds. But they will need even more powerful memory chips installed to keep up. That’s why semiconductor stocks see ever-growing demand. Every few years, the devices their chips go in need total upgrades. That means more sales for Micron over the coming years.
So why did the company just get a downgrade?
An analyst at Wedbush Securities, an investment firm, recently downgraded the stock due to what it called “seasonal weakness.”
But they have it all wrong.
While Wall Street analysts are great at breaking down balance sheets, they don’t have a good track record of predicting stock price movements.
That’s because they have hidden agendas in their corporations to upgrade and downgrade the stocks they cover.
The bottom line is that analyst expectations aren’t leading indicators for price movement.
Case in point is the seasonal weakness the analyst mentions. They expect the stock to experience weakness heading into the end of the year due to a slowdown in sales.
The analyst may be right. Chip sales may decline near the end of the year. It makes sense as tech companies focus on a holiday sales push, instead of creating new devices.
But if you take a look at the actual industry, a seasonal decline in the stock at the end of the year is just not likely.
Take a look at the 10-year seasonal trend for the semiconductor sector:
This chart combines price moves for the past 10 years. They’re averaged and arranged to show the stock’s trends during specific times of the year. We use charts like this to show us the seasonal trends for specific sectors of the market.
This chart is showing us an exchange-traded fund (ETF), VanEck Vectors Semiconductor ETF (Nasdaq: SMH). SMH tracks the semiconductor sector. In the blue shaded area, you’ll see that semiconductors tend to bottom in late August, then steadily climb through the end of the year.
I don’t pay a lot of attention to investment firm analysts. It’s for reasons like this.
They’re more interested in looking like they are paying attention, than actually paying attention.
I take a different approach. I look at data and real-world trends. I’ve developed an approach using these trends, where we can enter individual stocks throughout the year, down to the day the seasonal trend begins. Click here to find out more about this strategy now.
Following the analyst recommendations on a stock is like trading on old news. I want to know where the stock is going in the future, and seasonal trends are a phenomenal predictor of that.
Chad Shoop, CMT
Editor, Automatic Profits Alert
P.S. Tesla stock also received a recent downgrade and Chad thinks this is simple price manipulation by Wall Street analysts. Check out his thoughts on Tesla Inc. (Nasdaq: TSLA) over on Money & Markets.
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.