• 01 Nov 2007 at 11:38 AM
  • research

Penny-Stock Pump And Dump Text Spam

And so it has begun. We always knew that some day the spammers would find a way to use our precious mobile phones against us. And that day was yesterday, when our good friend Meghan got spammed with penny-stock promotion. (Hey it’s Judson) Thick as a brick you cannot sit this trade out, check [redacted ticker symbol] and it will surprise you.

We’re not even sure that means. “Thick as a brick?” And what does it mean to “sit this trade out” when there is no actual trade named. Just a ticker symbol. Are we supposed to short it. Also, “it will surprise you” seems just about the worst way to recommend stock we can imagine. Are you looking for more risk in your life? You should totally do something with this stock.

  • 11 Sep 2007 at 9:54 AM
  • research

Please Sir, I Want Some More…Analyst Coverage

OliverTwist.jpg With the paring down of sell-side research groups, more and more companies are orphaned without analyst coverage. According to a new study, the fate of orphans is usually not a good one. Orphans are much more likely to turn to a life of underperformance than their covered stepbrothers. There are early warning signs with these troubled youths, as they pickpocket shrinking research resources and generate meager investment banking revenue.
According to the study, an orphaned company is 26% more likely to be delisted, although research groups often leave orphans on the steps of a PE firm or other company. Half of delisted orphans go into liquidation, while 42% get acquired.
A Sad Tale of Wall Street’s Orphans [DealBook]

Since the 2003 Spitzerization of equity research, analysts have issued more accurate recommendations. Now, equity research analysts are more bearish than ever, which might mean… [insert your own conclusion here due to the widely divergent opinions on whether equity research analysts perform any prescriptive function]. Bloomberg provides the details:

Buy recommendations slipped below holds as a percentage of total U.S. stock picks for the first time ever in February, and now trail 45.3 percent to 47.8 percent, according to data Bloomberg began tracking in 1997. Sells have increased to 6.9 percent from 1.9 percent in March 2000.

There is also a record amount of shorting going on as a percentage of shares traded on the NYSE. Is this a result of bearishness, or the hedging of a record number of long bets?
The bearish recommendations of analysts may have some grounding in reality, since analysts can tell us what they really think about a company without stigma. Others are unable to get past the reputation of equity research as almost anti-prescriptive, built on the days when recommendations were banking client fluffers, or at least gaudy vanity mirrors.
Even though analysts in a majority of the 10 firms involved in the 2003 case have issued market beating recommendations in the last 2 years, several insiders think the bearishness of analysts is a sign that the market will continue to surge. A push to a new record would avoid the fate of the S&P the last time the index hit a record high in 2000. The S&P has lost just 0.5% since hitting a record high on June 4.
Wall Street Analysts Proving More Bearish Than Ever [Bloomberg]

  • 30 Mar 2006 at 1:17 PM
  • research

No One Intends to Be a Small Cap Company

Gary Weiss and Mark Cuban are both making arguments that if you’re the CEO Biovail or Overstock and your stock is death-spiraling toward small cap oblivion, you can’t really blame an itty bitty research firm in Arizona for your company’s overall poor performance. And we can’t argue with that. No one’s entertaining the notion that Patrick Byrne is was the next Jack Welch.
But if, hypothetically, you had a “shareholder activist” who ran a $7bln fund in Connecticut heavily invested in your company and that investor had the potential to bash your other shareholders over the head with a negative research report, you’d probably pay attention to that guy and you’d probably pay attention the firms positioned to issue the negative research reports.
That said, the primary difference between activist-bully and an activist-populist is perception and good press. How do we know this? Because we have a Venn diagram (see below) that says so. And as every first year analyst knows, anything is true if you put it into PowerPoint: