True story: The other day, I (Brian) received an email
with this as a subject line: "Buy these stocks and make
money."
Of course, the email ended up touting a $0.04 penny stock
with an unpronounceable name (it
lookedfake). Apparently, an "analyst" somewhere
assigned a short-term "price target" of $1.10 to this
stock.
We're liberally applying quotation marks here to reiterate
the obvious absurdity of The Stock That Will Return 2,650% in
One Month.
Back to real life
Ridiculous claims in the stock market are nothing new,
of course, and ridiculous claims from analysts are
especiallyold hat. (Click
herefor a story about the analysts who pegged Countrywide
Financial "outperform," with a $45 price target, in the fall
of 2007.
Bank of America eventually bought Countrywide
in an all-stock deal that pegged Countrywide at about $4.
Some analysts speculate that even $4 was too high!)
We'll even go so far as to advise you to fight --
violently, if necessary -- whatever urge you may have to
click on the "analyst opinions" tab at Yahoo! Finance. While
it may seem prudent to see what the "smart money" thinks of
your stock, this page is one of the most dangerous places on
the Internet -- truly NSFW, as the tech-savvy say. It's not
even worth the five seconds it takes for your browser to load
the page.
That's because (1) you get no context and (2) nearly every
single stock -- surprise, surprise for an industry that makes
money by convincing you to buy stocks -- is considered
"undervalued." Here are a few notable examples:
Company
Recent Closing Price
Analyst Target Price (Mean)
eBay (Nasdaq: EBAY)
$22.75
$27.02
Google (Nasdaq: GOOG)
$540.30
$629.00
Chesapeake Energy (NYSE: CHK)
$24.77
$33.15
Research In Motion (Nasdaq: RIMM)
$60.78
$88.71
Goldman Sachs (NYSE: GS)
$172.16
$213.89
Data from Yahoo! Finance.
While we see the merits of an investment in eBay, Google,
and so forth, it's preposterous to assume that every single
one of our semi-random sampling of stocks is, on average,
undervalued by some 28%. Continued... |