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Industry
Analysts
Analysts,
who are these people and what do they do. Some analysts
are highly intelligent and with others you sometimes wonder.
Some are highly outspoken and others are merely meek bean
counters that diligently perform their jobs and go home.
Most of the “analyst’s ratings” referred to in the industry
are from a group of many hundreds of analysts that work for
the large recognizable brokerage firms. There are many
more analysts and many more brokerage firms but their comments
get lost somewhere, probably at some editor’s desk where if
the firm’s name isn’t recognized they get tossed aside.
Some analyst’s experience can be counted in minutes and others
in multiple decades. Some analysts make earnings projection
for the companies they follow and others don’t. Analysts
may focus on a specific sector of the market such as healthcare,
technology, or retail, while others focus on the market as
a whole. An analyst may follow just 5 or 10 stocks,
or many hundreds of stocks. A firm may have a handful
of analysts or several hundred. Analysts may be quick
to upgrade or downgrade a stock or they may do as two big-name
firms recently did and wait until a $60 stock plummeted to
just $4 before shifting from their Strong Buy recommendation.
Whether their comments are accurate or well founded, a few
analysts are revered as almost gods. When they say reduce
your equities allocation by 5 or 10 percent you’d better be
careful if you want to single handedly disagree with a 600
mph bulldozer. Some times the question is raised of
the news media: do they report the news or do they create
the news? The same question is sometimes asked about
analysts: do they comment on stock moves or do their comments
move stocks? Abby Joseph Cohen of Goldman, Sachs &
Co. placed the last straw on the camels back this spring when
the high priced tech and Internet stocks began their fateful
dive. Investors sometimes need to be concerned about
analyst’s comments. Just as the Federal Aviation Administration
is given the role of policing the aviation industry they are
also given the task of promoting it. Many analysts have
the task of cheerleader at their firms. They have the
responsibilities of finding new stocks to cover. This coverage in turn results in the sales force pushing to
customers the stocks with newly initiated coverage or that
have been recently upgraded. This can be good because
an analyst or two upgrading a stock can have the effect of
having the sales force at two firms pushing the stock to their
clientele. There can be a downside to this also. It can be difficult for an analyst to change their opinion
on a stock when all the firm’s clients just added it to their
portfolios. It’s also difficult to make negative comments
on a stock your firm holds large quantities of when the firm
would like to sell it to customers. Analysts’ ratings
may be a simple buy or sell, or they may fit into the traditional
strong buy, buy, hold, sell, strong sell framework. You may have noticed few analysts issue a sell rating on the
stocks they follow, so a few fresh hold ratings on a stock
are usually analogous to sell ratings. Some firms have
terms like accumulate, speculative, near-term, long-term,
neutral, and many more terms that are linked together in a
myriad of ways and have an untold number of different meanings.
How they are interpreted depends if your analyst is paid to
provide unbiased research or is paid to push stocks.
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