I2,
You are correct, the various rec terms used reflect their (the analysts') confidence in the rating.
Probably the main reason why you see so few outright "sell" recs is due to the fact that the firms don't want to alienate a potential investment banking client. Contrary to popular belief, investment banking is the area where the firms make the big cheese, not commissions. Hence, the investment bankers carry a lot of weight at the firms. If they had an investment banking client who they thought was going to generate a ton of business in the next twelve months, the last thing they'd want is their own analyst coming out saying to sell the stock. In Wall Street terminology, an analyst's use of the word "sell" is equivalent to using a four-letter word to describe a stock. Terms like "market performer," "accumulate on weakness," and "hold" are considered much more polite than "sell."
A much more telling indicator of what an analyst really thinks about a stock can be garnered from what they use as a price target. I recently read an analyst's report on a stock that had just been taken public by the analyst's firm. The guy had the stock rated "buy." However, the stock was selling at $13 when the report was published, and the analyst had a 12-18 month price target of $15 for the stock. Now, if the analyst thinks the stock will trade at $15 over the next 12-18 months, do you really think he thought the stock was a "buy" at $13? Obviously not. Here is a case where the analyst probably caved into rec'-ing the stock when he felt it wasn't that great, but didn't want to anger his investment bankers, who had just made a big score taking this company public, and could probably have him (the analyst) fired if they didn't like what he was writing.
Think about it--remember the analyst named Marvin Rothman who got fired after he wrote a negative report on bonds issued by one of Donald Trump's casinos? As it turned out, the guy's rec was right on target, since the bonds defaulted 12 months later. However, Trump got pissed, and the investment bankers at the firm fired the guy days after he published the report, since they didn't want to lose Trump as a client. Sometimes it doesn't pay to be right.
So don't put so much weight into the difference between "strong buy, buy, hold," etc. A much better yardstick to use is what the guy has for a price target.
Gary |
