American Axle and Manufacturing (AXL $11.15) is up ~7% today and ~15% from my blended cost on the ~6% position. An upgrade from JP Morgan after the company announced a 20% y/y increase in forward 3-year backlog is the primary reason for the increase. With most of the analysts at a Hold rating, and the stock trading at 7.5x the C11 consensus EPS estimate, the upgrade provided extra juice as the analyst was rewarded for a non-consensus call based on fundamentals (even though the news was out).
GT Solar (SOLR $7.46) is down ~11% today and and ~7% from my cost on the ~4% position. An analyst Credit Suisse Group downgrade to Market Perform from Buy is the primary reason for the weakness. The analyst is worried about supply/ demand issues impacting the company. This analyst also took a non-consensus position since almost all the analysts rate the stock a Buy.
While I obviously agree with the analyst on AXL and I am considering the analyst's opinion on SOLR, both these rating changes highlight the power of sell-side analysts who use their rating changes wisely. The best way, in my opinion, to beat the market is make correct non-consensus calls on stocks. A surprisingly limited number of analysts do this, choosing to move with the herd. The opportunities are relatively rare for an analyst to make correct non-consensus calls, since they typically represent a major change in the business, but from experience (I ranked in the top 10% for stock picks in 2006 by all Wall Street Analysts) I've found the challenge isn't so much in identifying the opportunity, but having the conviction/ "balls" to make it.
So I tip my hat to both these analysts for making the call. It remains to be seen if they are right.
No comments:
Post a Comment