The target price that Financial Service Companies (NYSE:FSC) like Standard and Poors and Credit Suisse put on a stock is a useful number to watch, but don't expect too much from it.
Most Financial Service Companies (FSC) like Standard and Poors and Credit Suisse provide a target price for the stocks they cover, but not all do so. I like to see a target price for a particular stock, but it's just something I look at to make a decision. It's not something you can "bank on"; but, what really is?
I like to compare target prices from one analyst/FSC to the next. It can tell me how much more (or less) the company's future price is being "targeted" and "favored". How much overall "sentiment" an analyst has for the company's stock is often reflected in the stock's Target Price.
For example S+P has a target price for Barrick Gold (NYSE:ABX)(48.5) of $75 a share, but at Credit Suisse ABX's Target is 58. Target Prices posted by these alalysts are posted for 12 months - looking forward.
If a FSC raises or lowers their target price, you should take note of why and by how much. When aCFA lowers his/her Target price and lowers the rating for the stock (i.e., Buy to Hold) this might be the time to sell the stock OR AVOID the stock altogether!
Sometimes even the best FSC and CFAs will post a target price for a stock that makes no sense to me.
For example, if a CFA (Certified Financial Analyst/FSC) puts a target price of $70 on a stock that is trading at $80 a share, and gives the stock a "Buy" or Hold" overall rating, I begin to scratch my head. Why would I hold onto a stock that the analysts thinks will drop in price? While this doesn't happen often, I have seen this contradiction often enough - and it's a confusing turn off.
Holding onto a stock until it reaches the Target price that your favorite analyst has on that particular stock is not a good policy to follow. This is because most of the Analysts and CFAs that post target prices will always raise their target price as the stock approaches the target. This is especially true of Credit Suisse' CFAs - a company that has very good analytical coverage for many of the stocks I follow.
In conclusion, don't hold onto a stock - waiting for it to hit its target price - because in all likelihood it never will. Check the Target Price of your stocks for changes up or down often is the best advice.
Disclosure: I own 2000 shares of ABX.
This articleshould be tagged with: Investing for Income, Income Investing Strategy Long and Short ideas...
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Disclosure: I am long ABX.