Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?
Let's take a look at what these Wall Street heavyweights have to say about Teradyne (NASDAQ: TER) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Teradyne currently has an average brokerage recommendation of 1.81, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 16 brokerage firms. An ABR of 1.81 approximates between Strong Buy and Buy.
Of the 16 recommendations that derive the current ABR, 10 are Strong Buy, representing 62.5% of all recommendations.
Brokerage Recommendation Trends for TER
The ABR suggests buying Teradyne, 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 ...
