Analysts Advocate Buying Stocks Despite Recent Sell-Off

Analysts Advocate Buying Stocks Despite Recent Sell-Off

almost 4 years ago2 mins

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This is edge of the seat stuff: even as investors sold off stocks late last week, some investment bank analysts are advocating buying certain stocks 🤔

What does this mean?

Long story short: KeyBanc’s analysts assigned buy ratings to Uber and Lyft, Jefferies’ to Dollar General, and one BMO analyst is now calling Disney his top pick. The real question is why they’re recommending investors buy anything during the worst weeks for stocks since the 2008 financial crisis.

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It’s partly down to the nature of their jobs: investment bank analysts try to filter out the short-term market noise, instead focusing on the earnings potential of the companies they follow. And during a heavy market sell-off – when virtually all stocks are falling – some analysts might view a few of their stocks as bargains and upgrade them to a buy 🏷

Why should I care?

Savvy investors should take analyst recommendations with a pinch of salt for a few reasons. One: those analysts are generally pretty reluctant to use sell ratings, as they risk damaging the relationship between the investment bank and the company itself. Two: investment banks want major investors to trade with them, and buy recommendations are more likely to encourage them to do just that. Three: ratings tend to be relative to the sector the analyst focuses on. So a buy rating on, say, Disney’s shares doesn’t necessarily mean the analyst thinks they’ll go up – just that they’ll perform better than those of other media companies 🎞

Buy ratings are much more common than sell ratings
Buy ratings are much more common than sell ratings

Analysts tend to get a lot of attention for their stock ratings, but they actually add more value to their large investment firms' clients elsewhere. As experts on specific industries and the companies within them, they’re an invaluable source of information for their clients. They can even serve as middlemen between clients and company management, which enables the likes of BlackRock to ask the Disney boss, “Hey New Bob, are virus-nervous consumers streaming more Disney+?”

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