Apple isn't the worst stock on Goldman's list
Goldman Sachs (GS) might pound the table with conviction telling you to buy a stock, but that doesn't mean you should. That even goes for Apple (AAPL).
Shares of the gadget maker fell 72 cents, or 0.7%, to $97.71 Thursday after Goldman Sachs cut its 12-month price target nearly 9% to $124. What's most surprising is Goldman just seven months ago put Apple on its "Conviction Buy" list back when the stock was still trading for $117.29. At that point Goldman pronounced the stock would be worth $163 by November of 2016 for a nearly 40% increase. Shares jumped 3.2% the day Goldman added it to its list.
But Apple has been a sore disappointment since being added to Goldman's much-watched list, dropping 17%, That probably was not what investors might have expected after the stock got the big brokerage firm's seal of approval. That only makes Apple the tenth worst of the nearly 60 stocks on Goldman's Conviction Buy list as of Nov. 18, 2015, following the 45% drop by professional networking site LinkedIn (LNKD), 34% drop by Signet Jewelers (SIG) and mortgage insurer MGIC Investment (MTG)'s 27% decline.
The brokerage actually lost its conviction for Apple back in April when it dropped it from the list. Thursday, Goldman cut its earnings per share estimate for Apple's fiscal 2017 and fiscal 2018 by 8% and 11% respectively to reflect the harsh reality of slower smartphone growth that most investors seem to be coming to grips with now. There is also a danger Apple will see its lofty average selling prices (ASPs) that are the key to its industry-beating profit margins erode. "Our reductions are driven by lower market growth, as well as lower ASPs on a greater shift from developed to emerging markets, which we expect will drive a higher mix of the lower-priced iPhone SE," says a report from Goldman analyst Simona Jankowski to clients.
Goldman declined to comment. Changes can be made to the Conviction Buy list at any time and Apple is still rated a buy.
But investors can learn that even one of the best regarded investment houses pounding the table about a stock doesn't translate into a victory on the stock market. That's not just because of a few unfortunate calls that soured. Had you bought all 59 of the stocks on Goldman's Conviction Buy list the day Apple was added - excluding Ruckus Wireless, the one company that no longer trades, you'd only be up 0.5% on average. Had you simply bought the Standard & Poor's 500 instead you'd be up 0.9%. So far, 47% of the stocks are down.
WORST PERFORMING STOCKS ON GOLDMAN CONVICTION BUY LIST *
Company, symbol, % change since 11/18/2015
LinkedIn, LNKD, -45%
Signet Jewelers, SIG, -34%
MGIC Investment, MTG, -27%
Lazard, LAZ, -25%
L Brands, LB, -23%
Voya Financial, VOYA, -23%
Valero Energy, VLO, -21%
W. R. Grace, GRA, -20%
Williams-Sonoma, WSM, -19%
Apple, AAPL, -17%
Source: Goldman Sachs, S&P Global Market Intelligence, USA TODAY
* As of 11/18/2015 when Apple was added