Interesting stock picking approach

Ditch

Ditch

Although i have been trading merely indexfutures for the last couple of years a column on a Dutch internet board caught my attention. The writer discusses the results of a portfolio of 5 stocks, that were selected, because they had the most sell-recommendations by analists. He also compared this to a portfolio of stocks with the most buy-recommendations. The sells showed a return of 78% over a 4-month period, whereas the buys netted 3% over the same period. I think, that's pretty amazing. By the way, if you like to read Dutch, here's the link to the article:

http://www.iex.nl/columns/columns_artikel.asp?colid=14961

Anyway, what i would like to see is other people to join in on this idea, and try to come up with actual trade recommendations. Personally, i would like to trade this idea through options, but i'm rather in the blind on where to find the necessary information on analists-recommendations and the type of equities, that would be suited for it. Can someone get me started?
 
When you say analysts, I am presuming you mean fundamental analysts. And the sell recommendation portfolio, did it provide a 78% return on the short side, or the long side?

And be careful... :).... using the term "trade" around here on anything longer than a 3-5 day swing trade is justifiable cause to send the thread into nonsensical debate.

There is a site, www.coveredcall.com , that picks its candidates based on the number of buy recommendations from analysts. It has a free trial for two weeks I think.
 
Quote from inandlong:

When you say analysts, I am presuming you mean fundamental analysts. And the sell recommendation portfolio, did it provide a 78% return on the short side, or the long side?

And be careful... :).... using the term "trade" around here on anything longer than a 3-5 day swing trade is justifiable cause to send the thread into nonsensical debate.

There is a site, www.coveredcall.com , that picks its candidates based on the number of buy recommendations from analysts. It has a free trial for two weeks I think.
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Return was on the long side. I guess analysts recommendations are based on FA, anyway we're talking about recommendations by banks mainly. That coveredcall site would be something i'm looking for, however for sell recommendations. And i need some criteria to filter out stocks. As i want to pursue this idea through options, there needs to be some decent trade volume in LEAPS. I will be looking for a holding period roughly between a month and a year, i guess, the appropriate description is "investment"?
 
One potential source of info would be on Yahoo Finance. On the left side of the page, go to Analyst Coverage, Analyst Opinion. There you will see your stock rated from 1 (strong buy) to 5 (strong sell). Using your method, you would be looking for the 5's. Below the ratings are a list of initiated coverage along with upgrades and downgrades. Hope this helps.

Good luck,

Louie
 
Quote from LouieR:

One potential source of info would be on Yahoo Finance. On the left side of the page, go to Analyst Coverage, Analyst Opinion. There you will see your stock rated from 1 (strong buy) to 5 (strong sell). Using your method, you would be looking for the 5's. Below the ratings are a list of initiated coverage along with upgrades and downgrades. Hope this helps.

Good luck,

Louie
More...

Thx. it sure does.
 
They don't issue sell ratings until they are looking to buy. The sell rating is intended to scare the last longs out. When they feel that they are out, they start buying. When they issue buy ratings they are looking to sell out. They are trying to scare the last shorts out and to create liquidity to sell into without killing the stock.

Witness bac a few weeks ago. One of the large brokers came out with a sell rating about 10 minutes before the market opened. When the stock did not open poorly they jumped in and the stock is stilling going! On bac I caught those crooks red handed.

Think about it, what other reason would they even put out ratings other then to manipulate the market? The only reason we have a market is because a miniorty of partipants can consistently fleece the majority.

Sorry, I know that this pessimistic but this is just my opinion. I have no facts to back it up.

John
 
I recall seeing an article in RealMoney that looked at using analyst ratings. The conclusion, as I recall, was that strong upgrades or new buys from mid and lower tier firms were good buys. Buys from bulge bracket firms were not, possibly because of underwriting payoffs.

As for using sells, I would be cautious. It seems to me that analysts have only started using the sell label in the last two years, and typically they are late to apply it and slow to remove it. Quite possibly scanning for a large number of sell ratings would be a good way to find a list of severely beaten down stocks, but there would no odubt be good reasons for them to be beaten down. The trick is discerning what will bring them to life.
 
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