Friday, August 07, 2009

The Least Helpful Call Today



Actually, this call came out yesterday—but we doubt you’ll find a less helpful call awaiting you this morning.

It seems our friends at what is now called Bank of America Merrill Lynch needed to do a bit of housecleaning, price-target-wise, on a batch of stocks that long ago got completely away from them.

Why Wall Street’s Finest bother with price targets is beyond us: most of the time the price target is a few dollars above whatever the most recent closing price happens to be—assuming the analyst has been recommending the stock.

If not, the price target always seems to be a few dollars below the most recent close.

This bit of gamesmanship and self-delusion has been going on at least 30 years...and we should know: we used to do the same thing in our brief stint at what was then plain old Merrill Lynch. (Poke fun at it though we do in these virtual pages, "Mother Merrill" is a firm whose passing, at the hands of a bunch of cowboys, we still mourn.)

By way of example, look no further than yesterday’s price target changes on a batch of “Underperform”-rated stocks from Bank of Etc, compared with the most recent closing price (take a particular gander at American Express):

Alcoa—old target $8; new target $10. Last sale: $12.82.

American Express—old price target $15; new price target $18. Last sale: $31.31.

Boyd Gaming—old target $7; new target $8. Last sale: $9.32.

Century Aluminum—old target $6; new target $8. Last sale: $10.85.

Concur Technologies—old target $20; new target $24. Last sale: $36.97.

Garmin—old price target $17 a share; new price target $30. Las sale: $31.64.


Where else but on Wall Street can somebody whose job it is to recommend the purchase or sale of an item continue to discourage the purchase of that item while belatedly raising the price target on that item by as much as 75%?

Where else but on Wall Street can somebody still get paid for that kind of job?

Well, sure, in Washington D.C. certainly. And Pyongyang, yes. Tehran, sure. Caracas, definitely....


Jeff Matthews
I Am Not Making This Up


© 2009 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

3 comments:

Mark said...

>>Where else but on Wall Street can somebody whose job it is to recommend the purchase or sale of an item continue to discourage the purchase of that item while belatedly raising the price target on that item by as much as 75%?<<

Hey, I'm not defending those guys in general (it's always been my opinion that any analyst REALLY good at predicting stock prices wouldn't have to go to someone ELSE'S office every day), but what if (in the analyst's opinion) things got "a little better" for those companies, but aren't as good as the market thinks they are. Or, what if-- due to exogenous factors-- there's a general expansion of PE multiples in the market. As Keynes (supposedly, but may not actually have) said: "When the facts change, I change my mind -- what do you do, sir?"

siliconprairie said...

Keeping the target for american express so low does make them a bit more credible than if their calls were only +/- 5%. I still wouldn't pay attention to analysts but never doing something like this would be much more suspicious.

Ben said...

It never ceases to amaze me how consistently the sell side is on the wrong side of things. They loved most stocks a year and a half ago 50%+ higher and now hate them much lower and on their way up. Someone should start a fund investing in the most hated stocks by brokers and shorting their most loved. I'd invest.