The recommendations of Wall Street analysts are often relied on by investors when deciding whether to buy, sell, or hold a stock. Media reports about these brokerage-firm-employed (or sell-side) analysts changing their ratings often affect a stock’s price. Do they really matter, though?
Let’s take a look at what these Wall Street heavyweights have to say about Sony (NYSE: SONY) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Sony currently has an average brokerage recommendation of 1.22, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by nine brokerage firms. An ABR of 1.22 approximates between Strong Buy and Buy.
Of the nine recommendations that derive the current ABR, eight are Strong Buy, representing 88.9% of all recommendations.
Brokerage Recommendation Trends for SONY
While the ABR calls for buying Sony, it may not be wise to make an investment decision solely based on this information. Several studies have shown limited to no success of brokerage recommendations in guiding investors to pick stocks with the best price increase potential.
Are you wondering why? The vested interest of brokerage firms in a stock they …