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Technology Stocks : All About Sun Microsystems
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To: JC Jaros who wrote (19529)9/9/1999 11:57:00 PM
From: Bob Kim  Read Replies (2) of 64865
 
JC, RE: Could you please explain what 'targets' are about?

Merrill Lynch has a multi-part ratings system. Two components are intermediate-term rating and long-term rating. Both are supposed to be indicative of the appreciation prospects for a stock. As a practice, I tend to ignore the long-term rating. At ML, a Buy-rated stock is usually expected to offer at least 20% upside. Suppose a stock is at $100. To be Buy-rated, the analyst must put a price target of at least $120 on it. If the stock sustains a move to the $110 level and the analyst writes about the stock, the price target may need to be adjusted to $132 (1.20 x 110). You may notice that comments can become scarce if the analyst is unwilling to address the price target. Alternatively, at $110, the analyst could decide to downgrade the stock to Neutral, citing valuation and limited upside potential or downgrade to Accumulate and adjust the price target to fit an easier 10% threshold. In the case of the Top 10 list, I doubt that any of the stocks will be downgraded because of recent appreciation.

Stocks rated Accumulate/Buy (2-1) are tricky because there is a loophole that lets an analyst offer a price target with more than 20% upside as long as they are called "12-18 month price targets". Most price targets are supposed to be 12 months in duration at ML.

BTW, many firms avoid the use of explicit targets.

Bob
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