August 27, 2003

Analyst ratings ....

Hard to figure out what it all means. The old adage in regards to anaylst rating are that a "hold" means "sell", as no one ever says "sell" as it may affect the relationship between the analyst and the company. A buy could mean “buy” for the next day, week or year. So, not to be to facitious about it all, analyst ratings don't really mean alot on their own. Each needs to be taken context. For example, ABC company may have just slumped in price due to a poor quarter, their business remains sound and their future prospects look good. Analyst "A" says "buy", or "market outperform", becuse the share price is undervalued, based on the recent stock price drop. Analyst "B" says "hold" because the stock will take a quarter or two to recover from this poor quarter. His/ Her view is that putting more money in at this time is wasted until some better earnings arrive. Analyst "C" says "sell" (or changes his/her rating from buy to hold (hold equal sell?) ) as the price has dropped and the analyst does not want to have money in a company that is temporarily languishing. Same company, same events, all seen from different and legitimate perspectives.

This is the reason all analyst recomendations have to be viewed in light of who they are and what their style of investing is. I have found that this is sometimes difficult to do, and information about individual analyst's style are difficult to find. So, how do you utilize analyst ratings at all, if you do at all? Use them only after you are familiar with the company, recent events, and feel that the recommendations can be put in context.