Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?
Let's take a look at what these Wall Street heavyweights have to say about Accenture (NYSE: ACN) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.
Accenture currently has an average brokerage recommendation of 1.80, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 25 brokerage firms. An ABR of 1.80 approximates between Strong Buy and Buy.
Of the 25 recommendations that derive the current ABR, 14 are Strong Buy and two are Buy. Strong Buy and Buy respectively account for 56% and 8% of all recommendations.
Brokerage Recommendation Trends for ACN
While the ABR calls for buying Accenture, 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 ...