Analysts

Analysts

Postby winston » Thu Aug 20, 2009 7:26 am

Dan Ferris: Why earnings "above analysts' expectations" are actually crap
By Dan Ferris in the S&A Digest:

If I ran the Wall Street Journal, I'd shut it down for a week and fumigate the place... At the very least, I'd ban the phrase "above analysts' expectations." This phrase is such an obvious and well-known scam, I'm shocked it's still allowed in print. I would call Wall Street analysts a bunch of whores, just like our senators and congressmen... but that does real whores a disservice. Then again, a whore's expectations are about as low as a Wall Street analyst's these days, so maybe it's a good fit after all.

Take Home Depot, for example...

Home Depot, the world's largest home improvement retailer - and a bellwether for both the retail and housing sectors - announced "better than expected" earnings of $1.1 billion for the second quarter. Of course, the most prominent feature of its earnings is that they were below last year's second-quarter earnings of $1.2 billion... just like almost every other company that has beat analysts' expectations. (Wall Street analysts' perennially low expectations must make them wonderful marriage partners.)

But as we pointed out last week, headlines - in this case, Home Depot 2Q Profit Beats Expectations - can be misleading. The headline doesn't tell you a huge chunk of Home Depot's earnings came from one-time cuts. About $410 million of total earnings (37.3%) came from cutting costs and tax settlements.

And of course, like so many other companies, Home Depot's sales fell 9.1% to $19.1 billion. Sales from stores open more than one year (comp sales, a key retail measure) dropped 8.5%.

So in reality, Home Depot's sales are down a lot, profits are down a little (buoyed by cost cutting and tax settlements), and comp sales are down a lot...

If Home Depot keeps turning in "above expectations" performances like this one, it should be completely out of business in about 10 years. Mr. Market reads the daily news and swears by every word, bidding Home Depot shares up more than 3%.

Target's second-quarter earnings report was - you guessed it - "above analysts' expectations," even though revenue declined 2.06% (ouch) and earnings fell 6.4% (ouch, ouch).

At Target, the wonderful "above expected" earnings were the result of the same cutting everyone else is doing... In this case, staff reductions, salary freezes, tighter underwriting standards at the credit-card division, and fewer store openings all helped Target increase its gross margin to 31.9% from 31.2%.

Target's credit-card operation is still deteriorating. Profits fell 15%. Expenses for bad debt jumped 19%, and delinquent accounts are soaring. Accounts at least 60 days late increased to 5.8% from 4.5% a year earlier. The 90-day delinquency rate rose to 4.1% from 3.1%.

Mr. Market, of course, reads the Wall Street Journal like a good little apparatchik and swears by every word. He sent Target's stock up almost 7%.

Just so we're clear on what really happened at Home Depot and Target: Less money came in the door. Period. They sold less. They earned less. And this ain't poetry or painting: Less isn't more in finance. In finance, less is less. Why does the Wall Street Journal do such a miserable job of telling you this? It's not even trying to hide its attempts to slip more happy pills into Mr. Market's morning coffee.

You may also recall Goldman Sachs' record earnings report this quarter - the result of government subsidies and fancy accounting... These numbers will come back to reality soon enough. In the meantime, Mr. Market's taste for ailing businesses seems insatiable...
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
User avatar
winston
Billionaire Boss
 
Posts: 118528
Joined: Wed May 07, 2008 9:28 am

Re: Equity Research

Postby financecaptain » Mon Aug 31, 2009 6:57 pm

Another example of naive research !
http://research.sgx.com/reports/rpt_lis ... ion=by_coy (SIAS research, IFS Capital Ltd, 24 Aug 2009)
Valuation is based on currently lower than historical P/B and therefore rate it as a long term buy. Do you realise Company's ROE and ROA have deteriorated significantly when compared with history ???
Analyst did not question about quality of earning in first half 2009 consisting entirely of writebacks and negative goodwill ??? ; Only commented positively there was growth in Q-on-Q, never mind whether they are real ???
Analyst also did not query about the low level of loan provisions compared with its peers when its clients should be of lower credit qualities ???
Finally analyst commented positively on operating cash flows when business is a lending one ??? Does he know that positive cash flow means redemption of loans and therefore reduction of loan assets ? This means income will shrink more in the subsequent quarters ?
Unbelievable.
User avatar
financecaptain
Foreman
 
Posts: 286
Joined: Mon Aug 25, 2008 3:49 pm

Re: Equity Research

Postby kennynah » Mon Aug 31, 2009 7:27 pm

put your points across to the chief analyst of sgx... maybe they may hire your services after booting out this rogue analyst who made the above report.... ;)
Options Strategies & Discussions .(Trading Discipline : The Science of Constantly Acting on Knowledge Consistently - kennynah).Investment Strategies & Ideas

Image..................................................................<A fool gives full vent to his anger, but a wise man keeps himself under control-Proverbs 29:11>.................................................................Image
User avatar
kennynah
Lord of the Lew Lian
 
Posts: 16005
Joined: Wed May 07, 2008 2:00 am
Location: everywhere.. and nowhere..

Re: Analysts

Postby winston » Fri Oct 09, 2009 7:07 am

Analyst bullishness at highest levels since recession began
From Bespoke Investment Group:

This brings us to today, and the start of Q3 earnings season. As shown below, analysts are more bullish heading into the current earnings season than they have been at the start of any other earnings season since the recession began.

Over the last four weeks, analysts have raised forecasts for 638 companies in the S&P 500 and lowered forecasts for 391. This works out to a net of 247, or 16.45% of the index.

While some would argue that bullish analysts are a contrarian signal, we would note that earnings revisions were negative for several quarters and turned much more negative before they became a contrarian signal.

http://bespokeinvest.typepad.com/bespok ... years.html
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
User avatar
winston
Billionaire Boss
 
Posts: 118528
Joined: Wed May 07, 2008 9:28 am

Global Economic Data & News

Postby millionairemind » Wed Oct 21, 2009 7:39 am

Published October 21, 2009

Are equities still cheap?


By R SIVANITHY

IT IS shades of 2007 all over again. In the US, Wall Street is paying out obscenely large bonuses. And globally, stock prices are up more than 50 per cent in seven months and yet everyone is expecting them to keep rising because interest rates are zero. There is belief also that US officialdom will bail the market out if there's trouble, so there's no need to be too concerned.

Meanwhile, in this part of the world, China is being touted as the next best thing to sliced bread and target prices of stocks from all sectors are being constantly raised.

These same conditions were present at the start of 2007, before the US sub-prime and banking collapse, so it looks very much like history is quickly repeating itself. Thanks to those bubble-blowers of last resort, namely the US Federal Reserve and Treasury, risk-taking is back around the world - and back with a bang.

The problem is that if you believe in valuations and fundamentals, stocks are not cheap anymore. Of course, faith in fundamentals presupposes faith in the efficient market hypothesis that current prices properly reflect all available information about future prospects and a level playing field exists for all investors - a deeply flawed hypothesis as 2008's collapse painfully demonstrated.

But assuming that over time investors actually do look at such data as earnings and yields, and assuming all investors have equal access to information, the message from here onwards, when one takes a hard look at simple valuation parameters, has to be that the days of easy gains must slowly but surely be drawing to an end.

Last week, the crossing of the 10,000 mark by the Dow Jones Industrial Average and the regaining of the 2,700 level by the Straits Times Index were applauded by observers as heralding more upside to come.

To be honest, brokers and investment bankers, especially those in the US, cannot realistically be expected to do otherwise since their bloated bonuses depend on a continued ability to spin a bullish yarn.

The reality, however, is that the valuation figures supporting the major indices should at least give one some pause for thought, if not discomfort.


According to Bloomberg's financial service, the S&P 500 sells for a current price/earnings ratio of 20.5 and a forecast ratio of 18. Both figures are high by historic standards and are arguably not justified in an economy with limited growth prospects and largely propped up by trillions of taxpayer money masquerading as 'government stimulus'.

The numbers are also not supported by a paltry dividend yield of 2.3 per cent, while the recent huge quarterly losses announced by major banks like Bank of America and Citigroup should serve as useful reminders that optimistic earnings forecasts by analysts are dubious at best.

As economist Paul Krugman pointed out this week ('When will banks start lending again?' BT Oct 20), the earlier profits these banks reported were thanks to creative accounting, but the latest numbers are more indicative of a bleeding real economy faced with persistent unemployment and continuing losses on mortgage loans and credit cards.

(He also wrote that there's an urgent need for financial reform to be passed because banks will surely be taking on more risk, and 'when bankers gamble with other people's money, it's heads they win, tails the rest of us lose' - again, shades of 2007 all over again).

Elsewhere around this region, valuations are also not cheap anymore. The Straits Times Index's current PE is 21 while the forecast figure is 18 - almost exactly the same as the S&P 500's - compared to historic norms in the mid-teens, while the Hang Seng's comparable figures for the present and future are 24 and 18 respectively.

The inverse of the expected PE gives all these indices as trading at an earnings yield of 5.6 per cent, which still compares favourably with returns available from fixed deposits, but investors may wish to note that in Australia, the 10-year government bond yield is also around 5.6 per cent. The 10-year US Treasury bond, in the meantime, now yields 3.4 per cent.

This doesn't mean that stocks cannot go higher - after all, the last bubble lasted from 2003 when the Sars epidemic and the invasion of Iraq passed, to mid-2007 when the US banks started toppling like tenpins.

But in order for more upside to materialise, earnings estimates will have to be raised and companies will have to deliver pretty spectacular growth in the quarters ahead to meet those estimates.

With risk appetite growing as rapidly as it has over the past seven months, there's little doubt that the financial community will respond in positive fashion by finding novel ways to keep the bandwagon rolling (and with it, their bonuses). For example, one ploy for calling a buy on a company with no earnings is to resort to raising book value; another is to project earnings several years into the future, beyond what is currently visible if the present is littered with losses; while yet another is to point to higher prices commanded by supposedly similar companies in other markets as justification.

Smart investors would do well to keep an eye on valuations and to note that they are looking stretched all over the world.

Source: Business Times Singapore
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch

Disclaimer - The author may at times own some of the stocks mentioned in this forum. All discussions are NOT to be construed as buy/sell recommendations. Readers are advised to do their own research and analysis.
User avatar
millionairemind
Big Boss
 
Posts: 8183
Joined: Wed May 07, 2008 8:50 am
Location: The Matrix

Re: Analysts

Postby winston » Fri Jan 22, 2010 11:44 am

A couple of "Sell" reports today.

These "experts" are so good. Market fell on their recommendations or was it before their recommendations :D :lol: :roll:
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
User avatar
winston
Billionaire Boss
 
Posts: 118528
Joined: Wed May 07, 2008 9:28 am

Re: Analysts

Postby kennynah » Fri Jan 22, 2010 1:49 pm

they had to do their job mah... if not, their bosses will query their performances...
Options Strategies & Discussions .(Trading Discipline : The Science of Constantly Acting on Knowledge Consistently - kennynah).Investment Strategies & Ideas

Image..................................................................<A fool gives full vent to his anger, but a wise man keeps himself under control-Proverbs 29:11>.................................................................Image
User avatar
kennynah
Lord of the Lew Lian
 
Posts: 16005
Joined: Wed May 07, 2008 2:00 am
Location: everywhere.. and nowhere..

Re: Analysts

Postby Aspellian » Fri Jan 22, 2010 1:58 pm

winston wrote:A couple of "Sell" reports today.

These "experts" are so good. Market fell on their recommendations or was it before their recommendations :D :lol: :roll:


most notably the Genting SELL report.

Is it not possible that they have 3 or more sets of reports with different assumptions and different recommendations. as and when the agenda is to push-up, sell-down or "LOOK damn smart", they will release the reports accordingly!! hahah!!
:mrgreen:

PROMISE, PASSION, PEACE, POWER, PURPOSE, PLAN, PATIENCE, PERSEVERANCE, PROTECTION
DELIGHT, DISCIPLINE, DILIGENT, DETERMINATION, DESIRE

"Its not whether you're right or wrong thats important, but how much money you make when you're right and how much you lose when you're wrong." - Warren Buffet
User avatar
Aspellian
Boss
 
Posts: 1552
Joined: Fri May 23, 2008 8:53 am

Re: Analysts

Postby winston » Sun Jan 24, 2010 7:39 pm

Like The Book Says, Do What Wall Street Does Not What They Say - If you get in the habit of buying stocks because they are upgraded or selling stocks because they are downgraded then you're probably developing a bad habit.

You need to learn how to evaluate the stock for yourself. Not a full scale investigation of the company, simple steps such as monitoring the volume to look for a buying or selling pattern, recognizing support and resistance levels and utilizing key charting patterns.

There could be a very good reason for downgrading a stock but it doesn't mean that it's going to move up big before it goes down or vice versa. When COACH (coh) got downgraded, I bought it and sold it 3 points higher. It eventually went down but not until after there was good money to be made in it.


Source; Adam Mesh
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
User avatar
winston
Billionaire Boss
 
Posts: 118528
Joined: Wed May 07, 2008 9:28 am

Re: Analysts

Postby winston » Sun Sep 05, 2010 11:11 am

Are Wall Street Analysts Contrary Indicators? By Jacob Wolinsky

‘Boy these companies look pretty good, earnings are OK, they have plenty of cash. What if there’s a double dip?’

‘I’m no macroeconomist, but . . .’

Here is an intriguing possibility, one that should make any investor holding 80% cash a tad nervous: The Buy/Sell/Hold crowd of analysts are excessively cautious:

“For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are “buys,” according to 159,919 recommendations compiled by Bloomberg.

Analysts are turning more pessimistic even as they push up estimates for profit growth among Standard & Poor’s 500 Index companies to 36 percent, the highest since 1988. . .

More than 54 percent of ratings for companies in the U.S., U.K., Japan and Brazil are “holds,” the highest level since Bloomberg began tracking the data in 1997.

While the proportion of “sell” ratings in the U.S. has fallen to 5.1 percent, half the level of 2003, the total combined with “holds” reached a record 71 percent last month, the data show.”

As we have noted so many times previously, following the Wall Street crowd of analysts is rarely the way to make money.


http://www.dailymarkets.com/stock/2010/ ... ndicators/
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
User avatar
winston
Billionaire Boss
 
Posts: 118528
Joined: Wed May 07, 2008 9:28 am

PreviousNext

Return to Other Investment Instruments & Ideas

Who is online

Users browsing this forum: No registered users and 5 guests

cron