Tuesday, December 04, 2007

You've gotta no when they "hold" 'em

Hold is the new Sell.

And, yes, they're at it again. Same story, different excuse, as the "No Sale" sign on broker's and analysts windows stays up, just like in the bad old days of the dot-com con, even on financials, through the credit crunch times.

No Sign of `Sell' on Wall Street as Analysts Say: `Buy,' `Hold'
Analysts rarely said "sell'' before the Spitzer settlement because they didn't want to jeopardize investment banking fees. Now, they're more concerned about maintaining good relations with company management. Only 7 percent of analysts' recommendations have been sell this year, down from 11 percent in 2003, data compiled by Bloomberg show.

Hintz, 57, the third-ranked brokerage-industry analyst according to Institutional Investor magazine, said in an e-mail that his ratings aren't intended as trading advice....

Instead of saying "sell,'' analysts have stuck with "hold'' ratings that are less likely to antagonize the senior executives they're monitoring, Larsen said.

While a "hold'' might be enough to signal to institutional investors that a company is in decline, retail investors follow analyst recommendations literally, according to a study published in the Journal of Financial Economics in August.

Authors Ulrike Malmendier, an economics professor at the University of California at Berkeley, and Devin Shanthikumar, an accounting professor at Harvard Business School in Boston, ... concluded that institutional investors sell stocks downgraded to hold, while small investors react to buys and sells, but not holds.

"Companies can live with a hold recommendation," said Larsen of Harding Loevner. "The tacit understanding by everyone, except possibly the retail investor, is that it's a less-harsh way to say sell."

Merrill's Moszkowski and Sanford Bernstein's Hintz maintained buy recommendations on Morgan Stanley, the second- biggest U.S. securities firm by market value after Goldman Sachs Group Inc., while the stock fell 30 percent from its high in June. Schorr has had a hold rating since 2005, missing out on last year's 44 percent advance and this year's drop.

Hintz and Schorr downgraded Merrill to hold on Oct. 25, a day after the firm announced a $2.24 billion loss. By that point, the stock had lost 32 percent. Moszkowski doesn't rate his company.

Citigroup, the biggest U.S. bank by assets, was down more than 13 percent for the year when Deutsche Bank AG's Michael Mayo cut it to ``sell'' on Oct. 12. It fell 25 percent before Nov. 1, when Meredith Whitney at CIBC World Markets issued a sell rating that drove the stock down another 8 percent.

For analysts, the punishment for a negative rating can be as swift and unmistakable as a door slamming shut, said Richard Bove, a Lutz, Florida-based analyst at Punk, Ziegel & Co., who downgraded the top five U.S. brokers to "sell" in July.

"At one of the companies I've been writing very negative things about for a while, the CEO absolutely refuses to talk to me anymore and I don't have access to that management"


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