A report was recently going around highlighting that the stocks with the most sell ratings have been significantly outperforming the stocks with the most buy ratings. Below we highlight the average percentage of buy and sell ratings for stocks in each of the ten S&P 500 sectors. We also provide the percentage change for each sector since the March 9th low.
As shown in the table, the sectors with the most positive analyst ratings have indeed lagged the sectors with the most negative analyst ratings during the rally. Health Care has the most buy ratings at 57%, followed by Energy, Telecom, Utilities, and Consumer Staples. These defensive sectors have been the worst performers since March 9th. On the other hand, Financials have the most sell ratings, and they're up 68% during the rally. Analysts are typically lagging indicators, and they have moved to a defensive position in recent months. This defensive stance has caused major underperformance as the S&P has rallied 25% off its lows.
Below we highlight the S&P 500 stocks with the most buy and sell ratings.
Research into the predictive capabilities of analyst ratings has shown that the "level" of analyst ratings don't provide much (if any) information of value, but changes in average ratings are worth watching and incorporating into stock evaluations.
Posted by: tom brakke | April 22, 2009 at 09:22 AM
I find this rather insidious. It seems to me that analysts have their hands up to their elbows in the market and buy stocks in a rally contrary to their own recommendations so that the prices go up and they offload the stocks at the highest possible prices. The overall market, according to me, is heading for a major breakdown and that point of time the sell-recommended stocks will be at their highest and the buy-recommended stocks will be at their lowest. The perfect opportunity for an expert to sell the duds at a huge profit and buy the gems at the lowest possible rates. This market is rigged (without prejudice to all my legal rights).
Posted by: K. Nadgir | April 24, 2009 at 12:42 AM
To explain it a bit further, the regular Joe and his broker don't look at the analysts ratings; they just look at the movement of the stock prices and buy into those that are going up. So if experts know the market is headed for certain crash and even if they publish accurate ratings, they can exploit the average Joe's ignorance by pumping up the sell-recommended stocks and selling at a high when the market does crash. This appears, on the surface, contradictory to ratings and it seems the analysts are terrible, but in fact it's a strategy to maximize profits at the cost of the guy on the street. Once again, without prejudice.
Posted by: K. Nadgir | April 24, 2009 at 12:51 AM