I was listening to radio news yesterday morning when a commentator from the Wall Street Journal said that many brokerage house analysts are beginning to recommend both Amazon (AMZN) and Apple (AAPL) as “long-term holds”.
What does this mean?
Well, it’s not a compliment. It’s a way saying “sell” while not putting the word in print.
Why would an analyst be so indirect? …because if his recommendation on a company’s stock is “sell,” then the company in question is likely to deny him access to company information, refuse to return his phone calls, decline to appear at conferences he organizes (see my post) …and do any other stuff it can think of to hurt his career.
Extremely petty, it’s true. But it happens. At least with the “hold” recommendation the analyst has a shot a plausible deniability. He can say to the CEO or CFO that the company is so spectacular that its stock is temporarily overvalued. All his recommendation is meant to convey is that investors should wait for a slightly lower entry point.
Of course, that’s not what “long-term hold” means. It’s broker-speak that can be broken down into two parts:
–“long-term” means there’s absolutely nothing attractive about the stock in the short term–meaning the next year or so. At best, the stock will be dead money.
–“hold” means the stock is not a “buy.” Over the time frame specified, the stock will likely move in line with the market.
–“long-term hold” means the stock in question is dead money in the short term and, in addition as far forward as the mind can imagine there’s no reason to think the stock ever has a chance to outperform the market.
So, although the term sounds innocuous, in practical terms there’s no worse recommendation than this.
Of course, we can take the discussion one step farther and ask whether analysts’ recommendations have any predictive value. My take: analysts typically know a lot about the companies they cover and the industries they’re in. Only a very few know much about how the stock market behaves. A lot of times, their recommendations are lagging indicators.