Analyze Stocks Like the Pros!

Commentary about business and finance.
April 10 2000 6:39 PM

Analyze Stocks Like the Pros!

Let's say you were asked to fill in for a Wall Street analyst covering Tommy Hilfiger. Your job is to tell investors whether Tommy Hilfiger stock is something they should buy, sell, or hold; and let's say you have never done anything like that before in your life. So then, on Friday, at about 7 a.m., a press release announces that the company is expecting a really lousy year. What do you do?

If you said "downgrade," perhaps you have what it takes to be a successful Wall Street analyst. By the end of the trading day, the analysts who cover Hilfiger for ING Barings, J.P. Morgan, Salomon Smith Barney, Merrill Lynch, and Credit Suisse First Boston all did precisely what a person who hadn't been paying attention to the company at all would have done, downgrading the stock from a buy to a hold (or equivalent terminology). Of course, by the end of the trading day the stock had already fallen more than 32 percent, to a 52-week low of $9.375. This morning, Bear Stearns spoke up, also downgrading the stock. (All this according to Briefing.com.)

Why is this useful? Wouldn't it be better for an analyst to express skepticism about a company's prospects, I don't know, some time before the company makes a negative announcement and the stock has tanked? Or, alternatively, if the analysts who cover Tommy Hilfiger had some kind of belief in management and the company's brand over the long haul, then perhaps a big stock drop would cause them to simply reiterate their buy ratings. After all, if a stock is worth buying at $15, it's an ever better deal at $9, isn't it? Apparently not: No one has upgraded or reiterated a buy rating.

This is a particularly silly example of something that happens all the time in the great earnings season kabuki dance that we are now in the middle of. Analysts make a great show of their upside predictions, trotting out price targets and so forth. But bad news hardly ever comes from them; it comes from the company, and instead of predicting trouble, the analysts just scramble to sort of confirm it after that fact. By then, of course, it's far too late for the rest of us.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Weigel
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
  Business
Moneybox
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
  Life
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.