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It was Analyst's "said" day today....did you listen??

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June 14, 2011 – Comments (0) | RELATED TICKERS: MU , DMD

 

Since an analyst rating can move an equity substantially then I suppose I should have more respect for them.  I do have quite a bit, but maybe not enough.   IF I'm researching an equity and there is a Link to something Crammer said a few hours earlier then I ALWAYS read it.  IF it's a buy rating on an equity I was thinking about buying then I'll put it on my watch list for a week. (Or maybe never).   It's certain to get a short term burst.  If it's a down rating on a company I was thinking about buying, my DD is nearly complete.  I can count on getting it for 5% less than I planned.

Analysts can move an equity for a short time.  The funny part, (well to me, because I'm wired a little funny) is that many of the same analysts will tell you that the markets set the "prices".  Sometimes they just need a little focus.  If an analyst says Equity A is a buy and gives a target 10% higher than it's current price and it jumps 15% that day then it's hard to blame the analyst for the overshoot.

It's clear the analyst has some motive for sharing his/hers pearls of wisdom for free to the rest of us.  It amazes me that many investors don't question before the leap.  Of course much of the trading done on the exchanges is computer driven. If Equity A jumps up by 3% then the computer puts in a small buy order.  It repeats this until Equity A drops and then the computer starts selling.

When Analysts Disagree it's also humorous as the market tries to digest the moves. I watched Micron (MU) the last few weeks

June 6th Takeover rumors.   close $9.04 

June 7th  Sell, Goldman Sachs Close $8.95

June 9th Sell, JPM    Close $8.49

June 10th, Buy, Wells Fargo  Close $8.44

June 13th, Buy, Think Equity Close $8.29

Now since the market was cycling heavy during this period, it's hard to say what the true effects were.   There were competitor earnings reports that stank, articles on Dram Glut and lower prices, etc.  Poor Micron has had a trading range of $6.35 to $11.95 the last year and it uses every bit of it.  In this case one has to wonder how analysts make their decisions since they can't agree.

Other equities get a much bigger bang/boost from the analysts.

JP Morgan gave Zipcar the thumbs up this week and they gained back over 15%. Who lead Zipcar's IPO...hmmm that would be JP Morgan.

Demand Media had a really nice bump today, 15% at the peak. Goldman Sachs gave them a nice "Buy" rating after a long sell off of over 45% since early April.  GS indicated that the part of the selloff caused by the way Google changed their search mechanism that reduces "hits" from Deman Media was overblown.  Maybe the 13,000 freelance writers will get more hits on eHow.com and Livestrong.com, boosting advertiser revenue....maybe.

The analyst indicates Demand Media might lose 10% max due to the changes in the search context and that they were a "unique service". I agree they are unique. The world isn't big enough for even one of them to profit successfully, let alone another one of similar nature.

Demand IPO'd at $17 per share in late January and shot up to over $20. They are 2X book and haven't turned a profit thier last three reporting quarters. Negative cash flow if you don't count the $79 Million in stock.  I think they need to write a few article on how to fleece investors, they might be quite popular.

Insiders dumped hard at the open in the $17 range. Most are MULTI-Millionaires. They still hold millions of shares...but GUESS who the biggest holder of shares was as of the last reporting date.........no really guess...... Did you say "Goldman Sachs"???? How smart of you!

When a stock goes on a one day tear it's best to give it a look before a downthumb or an upthumb here on CAPS. Sometimes it caused by a buyout in which case the spike will set a new ceiling and you won't have any movement left to bank a score.  Sometimes it's bad/good earnings.  Sometimes it's an analyst rating change.  If the later, I'm pretty quick to add it to my downthumb list, but you have to make a decision pretty quickly.  If the equity has a high short interest then a very large pop is partially caused by a squeeze.   After a few interday oscillations, the red thumb is pretty safe.

If it's an analyst who has a huge stake in the equity causing the spike then I almost....almost....feel sorry for the buyers getting in....but if they are trusting an analyst to make a buy/sell AND if they are doing so above or below the analysts target because the market  is already squeezing the equity then it's pretty hard to feel sorry for them.   When the equity goes back near its original trading range they scream "market manipulation" and shame on the MM's and Shorts.  Hmmm.....

So I do respect analyst ratings...or at least the power of the rating.  One has to show respect for something that has the ability to move an equity sharply....even if one doesn't agree with the analyst.  Now if I could only feed the equities to Crammer that I plan on buying and have him give a resounding SELL rating on them...I'd be golden!

 

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