Ola Ken. Large block buys on DRAX over the last two days, as you pointed out. On thurs. 18 buys at an avg. price of 3.42. On Fri. 3 large block buys at avg. price of 3.56.
I think that Gruntal is a "sell-side" analyst. Sell side analyst's coverage is likely to be related to a secondary offering or other financial arrangement.
Guess what....there's a job opening for a sell-side analyst:
stern.nyu.edu
Before going out on your job interview (now that you're eligible for a second carreer) here's a good explanation on sell side:
ragingbull.altavista.com
Sell Side Research Love it or leave it?
What happens when the company, in which you've invested your money, announces that its quarterly earnings will fall significantly below estimates, and that the CEO is jumping ship? Well, if that company is Advanced Fibre Communications, Inc. (Nasdaq: AFCI), your investment loses half its value the very next day.
I can't include here the initial reaction most investors might have, though I'm sure it would be similar to asking "Gee Wally, what in the world is going on!?" Like many others out there, you've read the research reports on AFCI and felt confidant in the 'Strong Buy' recommendation that Piper Jaffray taped to the company in late May. Furthermore, a month before the collapse, you probably noted the 7 'strong buy' and 4 'moderate buy' recommendations that Yahoo reported the investment banking community to have on the stock.
How could all the Wall Street analysts have made such a mistake. Why did their research paint such a rosy picture(now obviously unrealistic) of AFCI? Should the investment literature published by the world's equity analysts be taken seriously at all, or even read, for that matter? Sure they should! The market share data and business and industry concepts discussed in the reports are quite valuable in determining an investment outlook. Often times , information provided has been attained by the banks at a significant cost just for you. Though, as with any piece of literature, it is important to read critically and ask a few simple questions.
It is important as well to pay close attention to the language and substance of that work. Pinpoint sentences where the phrases "we believe," "we assume, " or "we feel" are used. One might pause and ask oneself who the author of the report really is. How experienced is this writer? Does the writer have an agenda of which I should be aware? Do I like\dislike this report, and why ? Some reports are just terrible. Conclusions based on nebulous macro- economic assumptions are tough to take seriously, personally speaking. Taking the time to pose such questions may seem an unnecessary task but this is your money.
These reports (termed "sell side research") written by, now famous, equity analysts are taken as the Gospel by many. Lately, determining one's investment decisions based solely on these reports has probably paid off. Following industry's and companies is what these analysts are paid for. It's logical to think they would know best which stocks indeed should be dubbed "buy," "sell," or "hold." Yes, analysts do understand more than the average investor. And yes, the earnings models that analysts create are often times effective. However, any earnings forecast that exists ultimately comes from the company itself. Earnings estimates aren't revised because an analyst has new-fangled insights, the company has guided that analyst toward the more realistic targets.
The most important question to ask oneself is 'Why is this report being written?' The answer to this question is quite curious. Yes, these analysts want to aid retail customers (you and I) in making wise investments. Though, the bread and butter of the investment banking business are the corporate finance deals which the banks broker; whether they be IPO's, secondary equity offerings, or debt placement. One factor in the attainment of such business is the relationship that the investment bank has with the current or potential corporate customer or "client" (i.e. Advanced Fibre) The security analyst is most responsible for culturing and maintaining that relationship. Perhaps Advanced Fibre is interested in doing a secondary offering. The company must decide on an underwriter. Advanced Fibre will probably choose a firm whom they trust and feel is most knowledgeable. The company's first link to Wall Street is the analyst who covers them.
So why was Advanced Fibre rated a "Strong Buy", a "Near Term Accumulate," or a "Market Outperform," but never a "sell"? It wouldn't make management happy
to have their stock labeled as a loser, and every analyst knows this. The analyst is in it for the potential deal. That's where the analyst makes the most money anyway. When a debt is placed or a secondary offering is secured, the analyst receives a percentage of the fees. The shrewd analyst will also figure ways to use clients. At the release of his/her upgrade, the analyst is in perfect position to make requests of management, considering the stock has more than likely responded positively to the upgrade.
The bank/client relationship is indeed suspect. Knowing the dangers of a debt-heavy balance sheet, Merrill Lynch continued to place debt for Boston Chicken, financing the company's rapid expansion. All the time, however, Merrill earned healthy fees, touted BOST as a great stock and Boston Chicken a healthy company. Boston Chicken, now nearing bankruptcy, is practically unable to meet monthly interest payments.
In reading Wall Streets sell side research, one needs to take the author's opinion with a healthy grain of salt. The reports do indeed contain useful and valuable information. Beyond providing a service for the investing public, investment banks are running a business and need to earn profits to show their own shareholders. This assertion is clearly reflected in the nature of sell side research and the motives of its author.
These are thoughts from one personal investor to another. If you question my motives for writing this piece, I think you will find them innocent and respectable. |
