Using Analysts as Contrarian Signals

Investors imbue analysts with high levels of credibility at their own risk. Wall Street analysts communicate in their own cryptic language that may impersonate English but rarely means what it says. When is a buy a buy and a hold a sell? In his book, Full of Bull, former Wall Street analyst, Stephen McClellan, divulges many of the open secrets about analyst-speak that gets retail investors in trouble.

This analyst double-speak is the basis for this week’s screen. Analysts are often stuck upgrading or downgrading a stock after the big move in the stock has already happened. Here was the criteria for the screen:

  • Current Avg Broker Recommendation>= 4.0;
  • Number of Brokers in Rating >= 2;
  • Optionable = “YES”;
  • Current Dividend Yield >= 3%;
  • Price-to-cash-flow <= 10;

View the full results of the screen here.

Please note that prices listed are as of 10/10/2009, when I ran the screen. Of course, premium members get instant access to the screen as well as detailed valuation data not available on the public site. Get more information about the premium service here.

Analyst ratings of 4.0 or higher indicate a strong sell call. I added in the optionable requirement as well as a yield so that we are paid to wait in case the stock takes a long time to realize its true value.

Interestingly enough, this screen yields nine names, five of which are REITs. The high dividend requirement probably factored in finding so many REITs and it seems analysts are still very skeptical of that sector.

The non-REIT names ranged from auto insurer, Mercury General Corporation (MCY), to Christopher & Banks Corp (CBK), the retailer.

You can view the full results of the screen here.

One Response to “Using Analysts as Contrarian Signals”

  1. The Enlightened American » Stock Screen: Analyst Darlings Says:

    [...] the past, I’ve run contrarian screens based on analyst sell signals; this time, I decided to look at strong buys. Most analysts love growth and I love cheap so only [...]

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