Mais um interessante artigo retirado do site FinancialSense escrito pelo Martin Goldberg.
A Questionable Analyst Call on Retailers
Excertos:
"Nothing Has Changed on Wall Street!"
NEW YORK (Dow Jones), Tuesday November 11, 2003. “Merrill Lynch set a bullish tone for the 2003 holiday shopping season by upgrading nine broadline and specialty retailers Tuesday, citing potential earnings upside surprises and accelerating sales in upcoming quarters. ‘We believe retail earnings are likely to be generally strong and above expectations for the next three reporting periods’, wrote analyst Daniel D. Barry, who upgraded broadline retailers BJ’s Wholesale Club Inc. Neiman Marcus Group Inc. (NMG a/b), Saks Inc., and Target to ‘Buy’. “
Mark Twain described the chicanery prevalent on Wall Street when he said that Wall Street is a short street; yet if you stand at one end of the street, you can’t see what’s going on at the other end.
So it is with the Merrill Lynch analyst upgrade. In upgrading the Neiman Marcus Group, they are upgrading a retailer that sells for a P/E of over 20, a mature company, that has a trailing 5-year sales growth rate of about 5%, and a dividend payout rate of “not applicable”. The stock has doubled in price since the beginning of the year. Only now Merrill Lynch decides to upgrade Neiman Marcus stock to “BUY”!
Merrill Lynch is publicizing their opinion of future good business conditions for department stores. (By informing us of this they appear to be altruistic to all people, including members of the general public as well as their clients.) In truth, they are citing comparatively lousy conditions last year. According to Barry in a research note, “Depressed sales in the fourth quarter of last year and first quarter of this year because of the ‘post 9/11 sales surge’, poor weather, and the Iraq war provide a low benchmark from which general merchandise sales could accelerate over the next two fiscal quarters in contrast to the economy, which may slow from the third-quarter spike in GDP”. Oh.
Is it a good time to buy broadline retailers such as Kohl’s, Sears, or as the Merrill Lynch analyst suggests, Neiman Marcus? Let’s look at the 5-year index chart of broad line retailers, below.
(gráfico no fim do post)
The index is definitely depicting “pendulum” action. The risk to reward ratio is on the side of the short sellers here. I would be inclined to not listen to the “buy” call made by Mr. Barry of Merrill Lynch. No thank you. Retail is a zero sum game!
I think the short analysis above gives us a clear lesson that in spite of the recent corporate governance issues and settlements, nothing has changed on Wall Street.
Analyst upgrades and downgrades are usually based on predicted short-term business conditions. The analyst’s decision to upgrade or downgrade the stock is usually based on the current market value of the stock (typically assumed to be at “fair value”). The short-term business conditions cited by the analyst provide the basis to upgrade or downgrade the stock from its current “fair value”. In the case of the Merrill Lynch recent upgrade of the broad line retailers, the analyst is citing improved short-term business conditions that, when compared to slower conditions last year (but better conditions the year before), will appear as “growth” to the stock market. However, as any logical person can see, this is not growth. It is just a cyclical fluctuation in business conditions.
In any valuation model for shares in a business, the fluctuation in business conditions would only result in negligible changes in stock value. In spite of this, Wall Street uses these tactics to “job” the price of stock shares while increasing trading volumes. And yes, orchestrated short squeezes are also an integral component of many such analyst calls. Trading resulting from analyst calls supports the bottom line of the brokerages since their profits and revenue are directly linked to the trading volume supported by speculation. Hidden in this stock jobbing is the amount taken from the trading “gamblers” by the “House” via bid/ask spreads. In 1988 Warren Buffett estimated that these costs to traders amount to a sum equivalent to 8% of corporate profits.
Will things change in the near term? I don’t think so. The SEC is currently part of the problem and not part of the solution. Our political leadership feels that our overvalued stock market should be supported no matter what. They do not want to rock the boat for the public’s long-term good. They want us feeling rich and spending. Business as usual on Wall Street is part of that. Our economy is now too dependent on an undependable character – the stock market. The SEC makes us comfortable that the stock market is fair by parading Martha Stewart in front of the TV cameras every few days for several years. Then they rapidly settle with proven and admitted mutual fund thieves in a (figuratively) smoke-filled room behind closed doors.
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