Investors often go back to the recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision on a stock. While media reports on rating changes by these employed (or sold) analysts often affect the stock price, do they really matter?
Let’s take a look at what these Wall Street heavyweights have to say Medical property (MPW) before discussing the reliability of brokerage recommendations and how to use them to your advantage.
Medical Properties currently has an average brokerage recommendation (ABR) of 1.83, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on actual recommendations (Buy, Hold, Sell, etc.) made by 12 brokerage firms. . An ABR of 1.83 hovers between Strong Buy and Buy.
Of the 12 recommendations deriving the current ABR, six are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 50% and 16.7% of all recommendations.
Brokerage recommendation trends for MPW
While the ABR calls for buying Medical Properties, it may not be wise to make an investment decision based solely on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to choose stocks with the best price increase potential.
Are you wondering why? The interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in the rating. Our research shows that for every “Strong Sell” recommendation, brokerage firms assign five “Strong Buy” recommendations.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of the future price movement of the shares. It would therefore be better to use this information to validate your own analysis or a tool that has proven very effective in predicting stock price movements.
Zacks Rank, our proprietary stock ranking tool with an impressive externally audited record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is a effective indicator of the value of a stock market. price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an effective way of making a profitable investment decision.
Zacks Rank should not be confused with ABR
Although Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.
The ABR is calculated only based on brokerage recommendations and is typically indicated with decimals (example: 1.28). In contrast, the Zacks Rank is a quantitative model that allows investors to harness the power of earnings estimate revisions. It is indicated in whole numbers — 1 to 5.
Analysts employed by brokerage firms have been and continue to be overly optimistic with their recommendations. Since the valuations issued by these analysts are more favorable than what their research supports because of the interest of their owners, they deceive investors much more often than they lead.
In contrast, the Zacks Rank is driven by earnings estimate revisions. And the movements of the stock price in short term are highly correlated with the trends in the revisions of earnings estimates, according to empirical research.
In addition, the various Zacks Rank grades are applied proportionally to all stocks for which brokerage analysts provide current year earnings estimates. In other words, this instrument always maintains a balance between its five ranks.
There is also a key difference between the ABR and the Zacks Rank when it comes to freshness. When you look at the ABR, it may not be updated. However, since brokerage analysts constantly revise their earnings estimates to reflect evolving business trends, and their stocks are reflected in the Zacks Rank quite quickly, it is still timely to predict future prices of actions.
Should you invest in MPW?
Looking at earnings estimate revisions for Medical Properties, the Zacks Consensus Estimate for the current year decreased 0.1% in the past month to $1.81.
The growing pessimism of analysts about the company’s earnings prospects, as indicated by a strong agreement among them in revising the EPS estimates lower, could be a legitimate reason why the shares will plunge in short order.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, resulted in a Zacks Rank #4 (Sell) for Medical Properties. You can see the full list of Zacks Rank #1 (Strong Buy) stocks today here >>>>
Therefore, it might be wise to take the ABR equivalent of Purchase for Medical Properties with a grain of salt.
Zacks Calls “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each chose their favorite to jump +100% or more in the coming months. From those 5, Research Director Sheraz Mian handpicks one to have the most explosive of all.
It’s a little-known chemical company that’s growing by 65% over the past year, but it’s still low. With unrelenting demand, increased 2022 earnings estimates, and $1.5 billion in share buybacks, retail investors could pounce at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double such as Boston Beer Company which rose +143.0% in just over 9 months and NVIDIA which boomed +175.9% in a year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.