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Time To Bet Against The Analysts
Heeding analysts' opinions on stocks? You may do better on your own. In fact, you may want to pull a classic George Costanza, and do the exact opposite of what your gut tells you, when you're considering the buy/sell opinions of the so-called pros.
Why's that? While their collective views are sometimes right, even a broken watch is right twice a day. And, as it turns out, a few of the market's most-loved (by analysts) groups have been disasters of late, while some of the market's most-hated - again by analysts - have doled out big rewards.
And here's the funny thing: Both groups may well be poised to continue defying analysts' collective opinions.
Can't Get No Respect
As of last month, the second-least-desirable group of stocks out there, according to the experts, is the confectioners - candy makers like Hershey Co. (NYSE:HSY) and Tootsie Roll (NYSE:TR). The average rating for the few of these stocks that are graded is slightly worse than a "hold". And, factoring in the bullish bias that's still overly-pervasive on the research side of the equity market's playground, that's the real-life equivalent to a sell.
Disaster stocks? Not quite. The average confectioner is up 45.7% for the last 12 months, and up 27.2% year-to-date. Compare that to the S&P 500's 2% loss year-to-date and its 21% gain for the last 12 months.
Hershey did most of that heavy lifting for the year so far, though Tootsie Roll - despite tumbling with the market in May - hasn't exactly underperformed relative to the S&P 500.
Hershey shares are still ranking a mediocre 3.1 - slightly on the sell side of a scale of one to five. Perhaps the analyst community is figuring the forward P/E ratio (2011) of 18.3 is inflated enough as is. However, considering the company has topped EPS estimates in each of its last four quarters, it seems as if the analysts following this stock are either way behind in their updates, or being stubborn in hopes of vindication at a later date. Either way, it's clear they were off the mark.
Failing to Live Up to the Hype
The analysts' bad buy/sell calls work both directions. Take computer-based systems stocks for instance - the fourth-best group (of 212), according to analysts. With an average rating of 1.56 on a scale of one to five, this tech group is about as strong of a collective "buy" as one could reasonably expect to see.
These stocks have rewarded investor optimism (ie: ownership) with a big fat 28.2% loss for the year so far, and a mere 7.8% gain for the last 12 months. Both are well under the broad market's performance for the same timeframe. One of the bigger disappointment here has to be Adeptec Inc. (Nasdaq:ADPT), with nearly a 9% loss year-to-date.
Ironically, it's one of the lowest-rated stocks in this group that's outperformed its peers - iGo Inc. (Nasdaq:IGOI). It's up 120% for the last 12 months, and higher by 35% for the last six months, overcoming a mere 3.0 (hold) rating. Fortunately, some investors have noticed that iGo has topped estimates in each of its last four quarters, and turned an operating profit for the period.
The Bottom Line
There's a fine line between insightful outlooks and shots in the dark. All too often, analysts end up on the wrong side of the line. In this case, that's bad news for ADPT owners, and great news for HSY owners. (For more, check out Analyst Forecasts Spell Disaster For Some Stocks.)
And here's the funny thing: Both groups may well be poised to continue defying analysts' collective opinions.
Can't Get No Respect
As of last month, the second-least-desirable group of stocks out there, according to the experts, is the confectioners - candy makers like Hershey Co. (NYSE:HSY) and Tootsie Roll (NYSE:TR). The average rating for the few of these stocks that are graded is slightly worse than a "hold". And, factoring in the bullish bias that's still overly-pervasive on the research side of the equity market's playground, that's the real-life equivalent to a sell.
Disaster stocks? Not quite. The average confectioner is up 45.7% for the last 12 months, and up 27.2% year-to-date. Compare that to the S&P 500's 2% loss year-to-date and its 21% gain for the last 12 months.
Hershey did most of that heavy lifting for the year so far, though Tootsie Roll - despite tumbling with the market in May - hasn't exactly underperformed relative to the S&P 500.
Failing to Live Up to the Hype
The analysts' bad buy/sell calls work both directions. Take computer-based systems stocks for instance - the fourth-best group (of 212), according to analysts. With an average rating of 1.56 on a scale of one to five, this tech group is about as strong of a collective "buy" as one could reasonably expect to see.
These stocks have rewarded investor optimism (ie: ownership) with a big fat 28.2% loss for the year so far, and a mere 7.8% gain for the last 12 months. Both are well under the broad market's performance for the same timeframe. One of the bigger disappointment here has to be Adeptec Inc. (Nasdaq:ADPT), with nearly a 9% loss year-to-date.
Ironically, it's one of the lowest-rated stocks in this group that's outperformed its peers - iGo Inc. (Nasdaq:IGOI). It's up 120% for the last 12 months, and higher by 35% for the last six months, overcoming a mere 3.0 (hold) rating. Fortunately, some investors have noticed that iGo has topped estimates in each of its last four quarters, and turned an operating profit for the period.
The Bottom Line
There's a fine line between insightful outlooks and shots in the dark. All too often, analysts end up on the wrong side of the line. In this case, that's bad news for ADPT owners, and great news for HSY owners. (For more, check out Analyst Forecasts Spell Disaster For Some Stocks.)
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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