What do you do if you are analyst and a stock that you like hits its target price? Do you, one, say, okay, that's it, I set this target a while ago and you know what, the target got hit and I am downgrading it, or two, do you ignore it entirely, or three do you raise your price simply because, well, the stock has moved up and you don't' want to leave the party.
I don't know if most people at home recognize how important -- and how tortured -- the price target game is. I know I do. We run an investment club that follows my charitable trust, www.actionalertplus.com , and one of the toughest things we do is we have to raise price targets simply because the stock outran the target. I think it lacks rigor and discipline to stay as invested as you are in a company's shares when a stock overruns your price target unless something has changed at the company. We take a little off the table when it happens and then we raise the price target for the rest.
But, that's not the way it works on Wall Street anymore. That's because, with just a few exceptions, most stocks have been going higher after price targets have been reached and the analysts are petrified that they will end up having nothing to recommend if they take a victory lap when that high target gets reached.
Case in point, none other than Target (TGT) . Do you know how hard it is to stay disciplined and downgrade when your target has been reached and yet that's what some unnamed analysts did. I leave them unnamed because, alas, how can I criticize people for doing what has so often worked in other markets. You would have steered people so wrong had you downgraded Target.
At the same time it does feel almost by rote these days. Just this morning alone we got multiple price target bumps in Home Depot (HD) , and Palo Alto (PANW) , the cyber security company, as well as Salesforce.com (CRM) , and Workday (WDAY) . We saw single price target bumps in Nike (NKE) , Disney (DIS) , Wayfair (W) , and Cramer family fave Okta (OKTA) .
What should an analyst do when she doesn't have the luxury of telling people to sell some stock and let the rest run to the next target price?
What I have been debating in this, the shortest bear market ever, is to turn the process on its head. What was disciplined in a more typical market, the market we have had for the last decade, doesn't work now. The real discipline, the really tough thing to do, is to try to figure out and justify why you should raise your price target. Is it really disciplined to downgrade Target's stock when the company has been so radically changed by both management and the times? If Salesforce is having an amazing quarter, as your channel checks show, you have the ammo you need to raise your price target with some dignity and intelligence. But if you are just playing momentum, you better be willing to admit that's what you are doing rather than say that the stock's worth more than it was.
Unfortunately, the latter is much more in play than the former. I am seeing so many trend following analysts who refuse to cop what they are really doing which is surfing the moment wave.
My conclusion? Take the price target bump game with a box of Morton's salt. Unless there is something truly new at work - and for almost all of the price target bumps today there wasn't - disregard the bump as nothing more than Wall Street silliness. It's a game played by blind bulls who won't be there when things go wrong and, unlike the last four months, they very often do.