SNA - The Case For Simpler Due Diligence
2024-04-08 20:52:47 ET
Summary
- Analyst ratings are shown to be ineffective in predicting stock performance, with no rating class outperforming the market.
- A simple screening process for large-cap income stocks is proposed, which has shown efficacy in holding up against the overall market.
- Snap-on, Inc. is the only passing company based on the screening process, with a financially secure profile and a strong dividend history.
Introduction
Eight years ago, when I was writing under a different name, I made the case that analysts' ratings were not worth a whole lot. In the work, I was reminded of David Dreman and Michael Berry stating, "On average, 56 percent of the estimates measured as a percent of actual fall outside a plus or minus 10 percent range, a level that many Wall Street professionals consider minimally actable, approximately 45 percent fall outside a plus or minus 15 percent range. These results indicate that on average, large earnings surprises are the rule rather than the exception." The major upshot of my work was that analysts’ ratings were worthless. It left me to wonder why people even bother paying them any attention....
The Case For Simpler Due Diligence