Nick Perry writes a regular column for Schaeffer's Investment Research in which he monitors media sentiment on a stock as a contrarian indicator. When the media is positive, it's time to sell; when the media is negative, it's time to buy. Here's his analysis of a recent Wall Street Journal article about Schwab:
Publication: The Wall Street Journal
Publication title: Schwab Again Has Wall Street Fans...for Now
Publication date: October 10, 2005
"But after its recent run, some analysts think Schwab's stock may not have much more room to grow in the near term." This article takes a skeptical look at Charles Schwab (SCH). The stock has outperformed the market and its peer group over the last year, but analysts appear to think the strong performance can't go on. The article ends by quoting a strategist who says, "I am more optimistic than I have been for some time on their prospects" but has only "upgraded the stock to 'hold' from 'sell,' a rating that he had had on the stock for about three years."
As regular readers of this space have seen us say many times, the strongest contrarians signs emerge when sentiment runs counter-trend to the price action. In other words, a contrarian is most interested in skepticism on a strong stock and most concerned about optimism on a weak stock. In the case of Charles Schwab (SCH) we find a strong stock showing signs of skepticism. The shares have risen 60 percent over the last twelve months yet Wall Street refuses to embrace the rally. According to Zacks, just four of 16 analysts (25 percent) rank the stock with a "buy" rating despite the outperformance. This combined with the skepticism expressed above might mean that the rally in SCH still has room to run.
Nick Perry (email@example.com)
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Full disclosure: at the time of writing the editor of this blog (David Jackson) is (painfully) short SCH. « Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of SeekingAlpha or its management. »