When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important?
Let's take a look at what these Wall Street heavyweights have to say about Lowe's (NYSE: LOW) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Lowe's currently has an average brokerage recommendation of 1.89, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 32 brokerage firms. An ABR of 1.89 approximates between Strong Buy and Buy.
Of the 32 recommendations that derive the current ABR, 17 are Strong Buy and one is Buy. Strong Buy and Buy respectively account for 53.1% and 3.1% of all recommendations.
Brokerage Recommendation Trends for LOW
The ABR suggests buying Lowe's, 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.
Do you wonder why? As a result of the vested ...
