There are a few ways to game the investment research process. The first is to go completely contrarian to the consensus view of your peers following a big announcement by a company. This was evident when Pacific Crest downgraded its rating on Apple (AAPL) following its big day on the world stage. The excitement over the new products was high and earnings-per-share estimates were getting pushed up while analysts were in attendance (or watching from New York). So why not get your firm's name out there with a cloud-raising downgrade?
That is not value-added research in my view; if said analysts wanted to actually be analysts, the downgrade would have come last week, ahead of the product introductions, with a tidy list of reasons why -- one being the Apple Watch has a limited market (I sure don't see construction workers dumping their Casio for an Apple Watch). Calls like these give investment research a bad name, particularly, that notes are used to drive trading fees instead of support long-term value building the goals of clients. I have seen this time and again, and I have no qualms speaking out against peers who usually are tasked with coverage on a measly 10 companies.
The other way to game investment research is to pick the fundamentally worst company -- a company that could conceivably go out of business -- and slap a drastic price target reduction on it and subsequent rating. We saw this yesterday when Wedbush said the bruised and bloodied RadioShack (RSH) could go bankrupt -- hardly fresh news. But something that stood out is this is an electronics retailer (at least it used to be). It might have a few new Apple products in its stores this year and next. Furthermore, the stock has been destroyed; hence, the company is an easy target.
And, yes, I believe that RadioShack will cease to exist in its present form by holiday 2015. Here is a template of how events are likely to go down:
- RadioShack files for bankruptcy.
- The company works on a reorganization plan, headlined by massive store closures that upset debt holders.
- Suppliers demand payment up front for goods.
- The company is shut out of lines of credit.
- Suppliers commit to less inventory allocations of key products.
- Consumers totally forget about the company.
- The company goes out of business sometime in 2016, or it sticks around as a zombie retailer with the backing of a distressed financier, operating 300 stores.
Obviously, there will are more intricate areas of the RadioShack story, but that is the broad outline of what is likely to play out in ugly form over coming months.
That said, I bring up all these happenings in investment research-land as a simple reminder: Don't get investment paralysis by analysis. There is so much content out there, not to mention access to free research reports on trading platforms and via brokerages. All of this stuff, even my work for Belus Capital Advisors that is shared on the Thomson Reuters platform, is likely seen by you well after the fact (or after clients are well aware and have made the proper adjustments to their portfolios). You want to be ahead of the fact, and I am telling you that is only done by investigating. Try sending investor relations an email; you'd be surprised how quickly they answer with information you overlooked or didn't know existed on a company's website.
Area of Interest: Amazon
According to various reports, Amazon (AMZN) has 61 fulfillment centers in the U.S., once thought to be a big competitive advantage to brick-and-mortar retailers that still hadn't integrated online stores with physical stores. That is changing, as ship-from-store capabilities for retailers, including Best Buy (BBY) and Target (TGT), are going live and turning thousands of stores into distribution centers.
Suddenly, it looks as if the mighty Amazon has some catching up to do with regards to building out its infrastructure. The Street thought the company was moving aggressively on this front, but now you have to wonder if it's moving quickly enough due to advances by the old guard.
God Bless America on this day of national mourning. Take stock of those who are close in your life and give them a hug or an actual phone call.