Analyst Recommendations More Reliable Now?
On my way to work this morning, I heard a piece of news on Bloomberg radio, saying that since then NY AG Spitzer forced Wall Street firms separate their research units from investment banking four years ago, analysts’ calls on stocks have become more accurate than before. For example, according to Bloomberg news,
Investors who mimicked both the buy and sell recommendations of seven of the 10 brokers beat the S&P 500 since June 2005, according to Investars. That compares with two out of 10 from June 2003 to June 2005.
In the past two years, 9 out of 10 big financial firms (Bear Stearns, Credit Suisse, Goldman Sachs, Lehman Brothers, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, Citigroup, UBS, and US Bancorp Piper Jaffray) have been accurate. Among them, Credit Suisse’s buy recommendations have outperformed S&P 500 by 4.7% and J.P. Morgan Chase had a 2.9% margin. The only exception is Piper Jaffray, whose buy recommendations failed to beat the benchmark.
So if the analysts’ opinions are accurate, how do they feel about the current markets? Bloomberg news says
Buy recommendations slipped below holds as a percentage of total U.S. stock picks for the first time ever in February, and now trail 45.3 percent to 47.8 percent, according to data Bloomberg began tracking in 1997. Sells have increased to 6.9 percent from 1.9 percent in March 2000.
That’s right, they are most bearish about the stock markets now. But do we really want to follow what analysts have said in making investment decisions? I don’t know, at least I don’t buy and sell stocks based on recommendations. Plus, there are many new issues or small stocks that will probably never get on the big guys’ radars. In fact, that could be a benefit for those stocks because of the lack of attention.
I checked my holdings and recommendations from analysts in the recent two years. I didn’t find many unanimous decisions:
- Bank of America: UBS – Neutral (09/11/06), Citigroup – Buy (04/11/06);
- Ford (F): Credit Suisse – Neutral (03/08/07), Goldman Sachs – Neutral (10/24/06);
- China Life Insurance (LFC): UBS - Buy (05/31/07), Bear Stearns – Underperform (2/21/07), Citigroup – Sell (12/04/06);
- Altria (MO): Goldman Sachs – Buy (11/15/06), Credit Suisse – Outperform (11/15/07), UBS – Neutral (10/13/06);
- Microsoft (MSFT): Credit Suisse – Outperform (11/26/2006);
- Nortel (NT): Goldman Sachs – Sell (04/27/07), Citigroup – Buy (01/26/07)
- Procter & Gamble (PG): Lehman – Equal weight (06/07/07), Bear Stearns – Outperform (03/22/07), Goldman Sachs – Buy (01/17/07)
- Progress Energy (PGN): Goldman Sachs – Neutral (03/08/07), J.P. Morgan – Neutral (02/21/07), Citigroup – Hold (08/15/06);
- Taiwan Semiconductor (TSM): Bear Stearns – Outperform (12/04/06), Citigroup – Buy (08/17/06).
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