Analyst ratings

In various places one can read summaries of analysts ratings of US stocks, by BOFA, Goldman Sachs, Morgan Stanley, etc. Similarly one one can look at Tipranks. Sometimes these differ. AT&T for instance is currently thought by some to be Buy (BOFA) or Neutral (UBS) or Moderate Buy (Tipranks). For discussion, what do people make of analysts ratings? Do you like any of them?

I have just been through all the ratings for the 85 US stocks that are each at least 0.03% of my portfolio. 16 have average rating Hold, the rest Buy, and none Sell. This seems very optimistic that none are Sell. I compute the money-weighted upside forecast by the analysts to be 8.5%. The dividend yield is 2.2%.

Are these ratings totally useless? When I used to be a client I would look at the BOFA US1 List. It has given me some good ideas, most recently BLK, which is up 60% in 14 months.

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I’ve never taken much notice of them. That said, I do find the average price targets somewhat useful, especially if I’m unfamiliar with a stock, if only to give me a ballpark idea.

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You should check investing pages with disclaimer that their analysts aren’t allowed to investing in the stocks they analyze. For example the Value Line Investment Survey

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US Analyst ratings… There is any Chinese wall? And it’s full proof?

European Union have created recent legislation about the research departments and investment side. That they must be separated to avoid conflicts of interest. I don’t know how effective is that separation in Europe. Much less in US, where the investors are more considered as dumb money or milking cows for the financial institutions.

I rather prefer do my due diligence and do my own valuations, but most people don’t have the time, formation or the will to do.

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Make your own decision. Sometimes I look to see after what analysts say to see if thoughts align.

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I don’t tend to consider them.
I may read them to see what the sentiment may be like on a stock, but I would not base my investment on it.

What I have ocassionally looked at is which companies have the most buy/strong buy rating, as I believe I read somewhere that even though most analysts tend to get their forecasts wrong, often those companies with the most “buy” ratings tend to outperform… possibly due to analyst forecasts influencing market sentiment.
So yes, I have very ocassionaly looked at what the top consensus “buys” (For example, based on all the analysts following a certain index) are and seen if any of them could fit my portfolio and be a rewarding investment in my opinion.

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At the end of the day, no one has a crystal ball. Its a bit like a toss of the coin, they might be on the money, they might not.

Also a lot of sites that list ‘analyst ratings’, do not adjust or split them out into separate sections between which information from the company that could be used to actually analyse their progress against competition.

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Each analyst has his valuation model (giving different results), and there is the Error that is the great unknown variable. Economic and financial forecasts are some of the most difficult to be made, because in the end it depends on the Human behavior (consumer preferences, bias, risk aversion, emotions and irrational behaviors). Probably is more easy to model the weather than the economy or finance.

Some of big investment banks, besides wiring the brightest minds in mathematics, physics, data science to do the most advanced models with AI, ML and Big Data, in the last years they are wiring social scientists (e.g. Sociology, Psychology, Political Sciences) and even neuroscientists (more experimental) to try to understand the Human nature and try to input that knowledge in the empirical mathematical models.

Just see the recent JPMorgan flop with the Super League. They failed to include the fans’ reactions (the politics just followed the mob) in their financial models.

Thank god, that they are still unable to model Human behavior, for when they finally accomplish that, there will be very little money to be made.

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I tend to check the consensus rating (and 1y target price) on yahoo. Use it as backup for my decision but treat it with a pinch of salt unless it’s totally contrary to what I’ve already concluded.

Analyst ratings are not very useful for long term investing. Analysts are employed by organisations with vested interests in the stocks that they analyse and therefore are only loyal to their employer’s. They also tend to be more focused on the short term. If you want to day trade then maybe you can find some use for them.

Very rarely (if ever) do I use the buy, hold, sell ratings from analysts to base my investing decisions. I don’t find them very useful as it doesn’t really give much about the company I am investing in. I also treat analyst price targets with a pinch of salt too, as I feel some of these are “loaded” so that they meet annual quotas to show their customers how good they have been with price predictions in the past.

Although saying this, it can be useful to keep in mind if the buy, hold, sell rating for a company does change as I have noticed it can knock the steam out of a stock value - Peloton springs to mind Dec 2020.

Somebody on Reddit analysed over 66,000 buy and sell ratings over the last ten years to see which institutions were the most reliable. Might be of some use to some.

It seems Barclays came out on top.

The Thread

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I remember hearing a story about Terry Smith downgrading Barclays to a ‘sell’ while he was working as an analyst for them.

Thank you for sharing, its very interesting. :smiley:

It also shows that they rarely give “sell” recommendations, (only 4000 out of 66000, despite the average stock underperforming the index…). This may be due to vested interests (they make more money the more transactions clients make and the more money clients invest):

image

Also seems to indicate that the “sell” recommendations are not very accurate on a 3 month basis as the stock tends to outperform the S&P500:
image

So overall, it seems like the data from that Reddit user (“Nobjos”) indicates that analyst ratings are all over the place and not necessarily linked to performance.

It also shows that the interpretation depends on what you look at, as my “conclusion”/“take home message” is different from that of the author :smiley: .

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Also note that ratings in 2000 when yahoo was around $100+ billion, but they just kept upping the price targets, much like they do now.

Do they ever share their models to get to the price target? I’d be interested to see them, but they don’t seem to be available.

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It would be interesting to see if there are any statistics on analyst ratings. Most of them are short term ratings I think, in which case are they not simply priced on momentum and likely inaccurate.

You need to compare against peers, rate management, price in volatility, market size and competition imo. All areas highly speculative in themselves as past performance is not always a good indicator of the future.

Employee incentives are potentially important as well. Basically are the company / shareholder objectives aligned.

Also shorter term the more volatility there could be.

You should definitely always look at what the Analysts say because of two critical points -

  1. That is their job and they use sophisticated tools, and background chatter. You don’t, otherwise you would not posting here. If the overall analysts ratings show a HOLD/UNDERPERFORM/SELL, then stay clear of that stock as 9.5 out of 10 the Analysts will be proved right. If the overall analysts sentiments is BUY/STRONG-BUY/OVERPERFORM, then the stock is worth your time. It does not mean you should automatically buy because as others on here have pointed out, analysts do sometimes get it wrong - it simply means that that stock is worth you now spending the time doing your own due diligence.

  2. The other reason you do need to pay attention to what the analysts say is that their views will inform retail investors sentiments, people like you and me. The more analysts point to a BUY the more retail investors are likely to buy the stock after their own due diligence. Similarly, analysts changing their positions negatively on a stock will impact on your investment.

So, Yes, do pay attention.

I use ZoneBourse.com (MarketScreener.com for English speakers) and TipRanks.com.

Good Luck but don’t forget your own due diligence as well.

E.

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I agree with the sentiment side more than anything, if several high profile analysts upgrade a stock, or increase a price target then ultimately this will attract more buyers.

After reading so much scepticism in this thread, I am very interested read you make a rationale case that analysts’ ratings are valuable. That’s my thinking too.

In most fields it makes sense to listen to people who have years of experience, teams of others working with them, and who are using tools unavailable to me.

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I think the same, but only on independent analysts (not connected to investment banks, hedge funds or other asset sellers/buyers). Meaning analysts without conflicts of interest.

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