Wall Street Analysts Back on Track?

by: Evelyn Rubin

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

AHEAD OF THE TAPE: Listen to Your Analyst

  • Summary: Wall Street appears to be listening to its analysts again: last week, DuPont (DD), XM Satellite Radio (XMSR), Applied Materials (NASDAQ:AMAT) and Gap (NYSE:GPS) moved up on analyst upgrades, while Boeing (NYSE:BA) dropped on a UBS downgrade. Analysts fell out of favor during the tech bubble burst, and with the initiation of the SEC's RegFD ruling, which prevented analysts from receiving preferential status. According to a study by Paul Bukowski from Hartford Investment Management's quantitative strategy group, an investor who bought into the 200 companies in the Russell 1000 with the largest upward revisions to earnings estimates while betting against the 200 largest downwards revisions would have had annualized returns that were on average 4.8% better than the index in the 1990's. This strategy would have underperformed the index by 9.3% between 2000 and 2004, but since the beginning of 2005 would have outperformed it again by 5.9%. While analysis may be improving, as the article concludes, "It might also be that companies have gone back to their roots, and are tipping Wall Street off again."
  • Comment on related stocks/ETFs: Analysts may be creeping into favor, but in blogsphere they are viewed with caution at best. Dave Fry takes issue with the way their records are gauged, and Shlomo Greenberg thinks they just don't get it with Teva (NYSE:TEVA), Checkpoint (NASDAQ:CHKP), Alon (NYSE:ALJ) and Delek (NYSE:DK).

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