Stock Option Advisory

Shorting the Stock Analysts – Contrarian Stock Trading

In previous articles, “Analyzing the Analysts – Buy, Hold Or Sell” and “Buy Stock Recommendations from Top Analysts”, we analyzed the “buy” recommendations of the stock market research analysts. In this article we analyze the “sell” recommendations of the stock market research analysts.

It’s generally not the aim of the analysts to recommend positions for going short, but it might be interesting to see how good the analysts are at getting out of positions. The analysts’ “going long” philosophy makes sense, as it is possible to make huge returns with long positions, as the largest return possible with a short position is 100%, double your money.

For this analysis, the buy recommendations of the analysts were ignored except for exiting previous “sell” recommendations. As in the previous articles, the results of this analysis include only stocks listed on the Nasdaq, NYSE and American stock exchanges going back to February of 1998 and does not include stocks that have merged, have been purchased, de-listed or have gone bankrupt.The results of the analysis are show below:

(optionable stocks are shown as links)

Analyst Start Date End Date Best
Pick
Best
Pick
% Ret.
Worst
Pick
Worst
Pick
% Ret.
#Co.’s
Covered
%
Correct
Avg
% Ret.
AG Edwards Mar-98 May-06 MLNM 86% AMLN -2585% 119 37% -72%
BB&T Capital Mkts Feb-03 May-06 CENF 78% XPRSA -158% 30 47% -7%
Banc of America Sec Aug-00 Jun-06 ASYT 68% AKAM -582% 151 39% -21%
Bear Stearns Jun-99 Jun-06 ITWO 69% TSO -1206% 149 36% -38%
Bernstein May-01 Mar-06 SAPE 45% AEOS -524% 26 27% -68%
Brean Murray Jan-03 Jun-06 DNDN 59% EZPW -125% 24 46% -10%
CIBC World Market Jun-99 Jun-06 GTW 95% UPL -811% 193 37% -45%
Citigroup Aug-05 May-06 BLDP 40% PLXS -77% 69 49% -4%
Credit Suisse May-99 Jun-06 PME 87% MT -637% 213 37% -31%
DA Davidson Dec-02 Jun-06 ABY 37% PLB -119% 50 38% -12%
Deutsche Securities Jun-02 Jun-06 DCN 96% CKFR -227% 128 30% -31%
First Albany Sep-02 Jun-06 SCON 93% COP -163% 38 34% -20%
Friedman Billings May-00 Jun-06 CIEN 65% FMD -158% 80 45% -12%
Goldman Sachs Dec-98 Jun-06 MAG 80% ETP -705% 210 34% -29%
Harris Nesbitt Apr-04 Apr-06 BCGI 90% CSGS -45% 39 59% 0%
J.P. Morgan Jun-01 Jun-06 KKD 83% MTSN -456% 364 29% -31%
JMP Securities Feb-03 Jun-06 ITWO 69% JNPR -103% 48 40% -17%
Janney Montgomery Jun-98 May-06 AMZN 45% DTPI -196% 24 46% -14%
Jefferies Apr-98 Jun-06 XIDE 76% AX -329% 89 44% -17%
Keefe Bruyette Mar-01 Jun-06 FBP 63% BLK -270% 48 40% -16%
KeyBanc Capital Mkts / McDonald Oct-04 Jun-06 PLB 58% BLI -139% 26 50% -5%
Lehman Brothers Jun-99 Jun-06 DCN 96% OMG -333% 209 31% -30%
Matrix Research Dec-05 Jun-06 LTRE 33% CNC -168% 67 63% 1%
Merrill Lynch Apr-98 Apr-06 YBTVA 85% USG -499% 182 35% -38%
Moors and Cabot Apr-04 Feb-06 SYMC 36% ASYT -82% 26 65% 0%
Morgan Keegan Jul-02 May-06 CENF 44% ATSI -900% 26 35% -51%
Morgan Stanley Sep-00 Jun-06 MANU 71% SOHU -1085% 307 30% -42%
Needham Nov-98 May-06 AGEN 61% RIMM -484% 23 52% -35%
Oppenheimer Mar-04 May-06 SKYF 15% KMG -49% 20 25% -10%
Piper Jaffray Aug-98 Jun-06 CIPH 71% AX -329% 56 52% -5%
Prudential Aug-00 Jun-06 UTSI 76% VTIV -2181% 209 34% -39%
RBC Capital Mkts Nov-01 May-06 SMRA 96% UPCS -1654% 153 29% -59%
Robert W. Baird Dec-99 May-06 DCN 96% RIMM -834% 62 34% -32%
Ryan, Beck & Co. Oct-02 May-06 PLNR 33% ECLP -304% 26 46% -30%
Sandler O’Neill Oct-04 May-06 IMH 40% AX -329% 24 63% -23%
Stanford Dec-04 Jun-06 INCX 65% WG -72% 20 65% 2%
Stifel Nicolaus Aug-04 Jun-06 PLB 80% FRT -125% 20 50% -6%
Sun Trust Rbsn Humphrey Apr-02 Jun-06 KRI 89% MDRX -604% 30 47% -31%
Thomas Weisel Jun-03 May-06 GLGC 71% AMKR -156% 29 31% -21%
UBS Sep-03 Jun-06 AGEN 78% TSO -704% 170 37% -22%
WR Hambrecht Jul-02 Feb-06 ALT 90% BJ -179% 20 30% -42%
Wachovia Feb-02 Jun-06 SAPE 81% CCRT -586% 120 39% -29%
Wedbush Morgan Jan-03 Mar-06 SGTL 56% WTSLA -452% 20 30% -41%

The best analysts for recommending a sell appear to be the analysts at Stanford and at Matrix Research, both analysts exhibiting positive returns when following their sell recommendations. Also, from this analysis, it appears investors might experience better returns by buying when the some of the analysts recommend a “sell” and selling when some of the analysts recommend a “buy”. For example, the analyst AG Edwards had an average return of 51% in the previous “buy” analysis article, but for the “sell” analysis AG Edwards exhibited a –72% return. But if the trades had been reversed, buying when AG Edwards recommended selling and selling when AG Edwards recommended buying, an investor would have experienced a positive 72% return instead of a negative 72% return, representing a superior return than buying when AG Edwards recommends buying and selling when AG Edwards recommends selling. Other analysts besides AG Edwards also included in the distinguished “contrarians” group include Bernstein, WR Hambrecht, Wedbush Morgan, RBC Capital Mkts, Needham, Thomas Weisel, Sandler O’Neill, CIBC World Market, Oppenheimer, and Robert W. Baird.

For option investors seeking a stock option strategy for “going short”, there are several strategies available, Bear Call Credit Spreads and Bear Put Spreads for example. Poweroptions provides a search engine for finding potential option income generating positions for various strategies for those option investors seeking to “go short”.

[tags]Stock Analysts, Contrarian Stock Trading, Option Income, Option Investors, Stock Market Research, Optionable Stocks[/tags]

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