2011 proved to be a particularly frenetic year for equity investors. The S&P 500 closed exactly were it started at the beginning of the year. But tremendous volatility translated into losses for many traders.
At the beginning of 2011, most experts forecasted stocks would rise by year end. Deutsche Bank’s bull Binky Chadha forecasted stocks to end 2011 at 1,550, but he was horribly wrong. Only a few strategists, like Morgan Stanley’s Adam Parker had the guts to make the bearish calls that ultimately proved accurate.
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Strategists like Chadha and Parker make calls on the S&P 500, which can be helpful for index investors. But not everyone is interested in index investing. Many want to invest in individual stocks, and they’d like to use the good research calls associated with those stocks.
Price Target Study
We reviewed the price targets each major brokerage firm had at the beginning of 2011 for each of the 30 stocks of the Dow Jones Industrial Average. Then we compared those targets with the price of each stock at the close of 2011.
Once we figured out the margin of error for each analyst and the stock they covered, we combined those figures for each bank to determine a weighted score measuring the accuracy of each firm. The highest possible accuracy score would be 100, which would mean each analyst at the firm had price targets that match perfectly with the year end closing prices. (For more details on how we scored each firm, see our methodology.)
As expected, analysts generally forecasted the stocks they covered to rise. So, the analysts who were the most accurate were also the ones who overshot by the least.
No firm completely dominated in the rankings. Most had at least one analyst who was the most accurate analyst covering their stock. But most also had an analyst who was the worst in their category.
The most inaccurate analysts were the ones covering Bank Of America, which closed the year at $5.56 after losing more than half of its market value. The average price target at the beginning of 2011 was $17.27 with a range of $13 to $20 per share.
Deutsche Bank’s Chadha may have been one of the most inaccurate strategists when it came to forecasting the S&P 500. However, Deutsche Bank’s individual equity analysts scored relatively well in our study.
Generally speaking, the largest investment banks scored highly on our list with Goldman Sachs leading the bulge bracket banks.
But Goldman Sachs didn’t take the crown in our study.
Note: This feature originally appeared on Business Insider on January 6, 2012.
Comments: Stifel's analysts made the worst calls for Bank of America, Cisco Systems, Coca-Cola, Intel, and Microsoft, which weighed heavily on their score.
However, the firm had the most accurate analyst covering AT&T.
Comments: FBR's call on Verizon proved to be the most inaccurate.
However, they were relatively close on their price targets for JPMorgan and Microsoft.
Comments: Credit Agricole made the most accurate calls for Alcoa, Chevron, DuPont, and Kraft. But that was about it.
They were way off with their calls on Coca-Cola and Procter & Gamble.
Comments: RBC's analysts made the most accurate calls for Procter & Gamble and United Technologies.
However, they made the worst calls for Chevron, Exxon Mobil, and IBM, which dragged down the firm's score.
Comments: Nomura's analysts were fairly close on their calls on 3M, American Express, and Intel.
But those accuracy points were largely offset by inaccurate calls on GE, United Technologies, and Verizon.
Comments: No Barclays analyst was the most accurate covering their Dow component.
Their analysts, however, were off relative to the Street on their calls for 3M, JPMorgan, travellers Companies, Verizon, and Disney.
Comments: Citigroup was right in the middle of our list.
They made the best calls for AT&T, Caterpillar, Intel, IBM, and Verizon, while making the worst calls for American Express, Du Pont, GE, Hewlett-Packard, and McDonald's.
Comments: JPMorgan made the best call for GE. The firm's analysts were pretty close on some of the other Dow components.
However, they did a relatively poor job predicting the prices for Bank of America, Chevron, Pfizer, and Walmart.
Comments: Deutsche Bank made the best calls for Bank of America, Chevron, Cisco Systems, Exxon Mobil, IBM, and McDonald's.
They were off, however, on their calls for Alcoa, Kraft, Merck, and Disney.
Comments: Credit Suisse made the best calls for Coca-Cola, Home Depot, Johnson & Johnson, and Walt Disney.
However, they made the worst calls for AT&T, Bank of America, Boeing, and Caterpillar.
Comments: BMO Capital had the most accurate analyst covering Cisco Systems.
They were way off with Home Depot.
Comments: UBS scored relatively well in our study.
They had the best calls for Boeing and Walmart. However, they made the worst call for Coca-Cola and GE.
Comments: Goldman Sachs was the first runner up in our study.
They made the best calls for Chevron, Hewlett-Packard, Merck, travellers Companies, and Walmart. They were off on Johnson & Johnson, but it didn't hurt their score too much.
Comments: Jefferies had the most accurate analysts according to our study. Their pharmaceuticals analyst made the most accurate calls for Merck and Pfizer.
Their analysts were also relatively accurate covering several other Dow stocks.
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