The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock's price. Do they really matter, though?
Let's take a look at what these Wall Street heavyweights have to say about Agnico Eagle Mines (NYSE: AEM) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Agnico currently has an average brokerage recommendation of 1.36, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 14 brokerage firms. An ABR of 1.36 approximates between Strong Buy and Buy.
Of the 14 recommendations that derive the current ABR, 10 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 71.4% and 21.4% of all recommendations.
Brokerage Recommendation Trends for AEM
The ABR suggests buying Agnico, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.
Are you wondering why? ...
