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 TJX (NYSE: TJX) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
TJX currently has an average brokerage recommendation of 1.24, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 25 brokerage firms. An ABR of 1.24 approximates between Strong Buy and Buy.
Of the 25 recommendations that derive the current ABR, 22 are Strong Buy, representing 88% of all recommendations.
Brokerage Recommendation Trends for TJX
The ABR suggests buying TJX, 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? The vested interest of brokerage firms in a stock they cover often results ...
