Downgrades of Investment Banks Look Hasty

 | Jan 25, 2012 | 11:26 AM EST
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Why are analysts so, so quick to downgrade? We caught a downgrade of Morgan Stanley (MS) and Goldman Sachs (GS) today, for example, and I thought it was totally fatuous. These stocks had been dogs in 2011, but business could be picking up right now, with the stock markets worldwide doing better and all of the banks in Europe restructuring.

We just got a hostile bid, this morning: Roche's bid for Illumina (ILMN). We have an IPO calendar that could get hot. We have tables of employment that are now rationalized, and we have lower expense structures. This is when you should be looking to buy them, not sell them.

Look, I get that the stocks have run, and that they now reflect values that aren't as good as they were a few weeks ago. I get that the analyst at JPMorgan sees them as companies with a lot of earnings power.

But I think the analyst is viewing these companies as static. Having worked at Goldman, I have seen the company find new ways of making money on the fly that can dazzle. These are moving targets, not stationary ones.

My worry, if I were this analyst, would be that you couldn't get back in. How do you thread the needle here? Do you upgrade Goldman back at $98? Or do you really think it is headed down, say, 20 points?

I find that very difficult to fathom.

My take? Buy them, don't sell them. They are cheap, their earnings are trough. Run to them, not away from them.

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