At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the worst ...
"This is a trader's market."
"Trade within the range."
"Sell before earnings -- don't risk 'em disappointing."
I'm hearing a lot of such talk among investors lately. Or rather, "investors-turned-traders." And I certainly understand why fear is running rampant -- a 40% plunge in the Dow will do that. Investors' faith in buy-and-hold investing has been shaken, and some feel tempted to try exiting positions before bad news breaks, or entering just before good news arrives.
At times like these, it's worth remembering: Trying to time the market is still a sucker's bet. In illustration of which, allow me to introduce you to Birmingham-based banker Sterne Agee & Leach, proud contender for the title: "Worst market timer ever."
On Thursday, Sterne Agee closed out a half dozen of its formerly bullish bets in the oil patch, downgrading these guys to "neutral":
-
Baker Hughes
(NYSE:BHI) -
BJ Services
(NYSE:BJS) -
Ensco
(NYSE:ESV) -
National Oilwell Varco
(NYSE:NOV) -
Noble Corp
(NYSE:NE) -
Weatherford
(NYSE:WFT)
Now, none of the major news outlets tell us why the stocks got downgraded -- but I have my suspicions. Wednesday saw the first of these six oil (services) barons, Baker Hughes, "miss earnings." BJ Services didn't do much better last week. And while the news from Noble and Weatherford was relatively well-received, Sterne Agee was staring at the prospect of its last two petro picks -- Ensco and National Oilwell Varco, disappointing Thursday.
Apparently, the stress was too much. In the wee, dark hours around midnight Thursday, Sterne Agee elected not to call Mr. Market's bluff. Instead, Sterne Agee folded.
Oops
Right before Ensco beat estimates by a nickel, and NOV by $0.14, sending the shares rocketing 8% and 9%, respectively. Note that these beats exclude the impact of Hurricane Ike and other one-time items.
Now, at this point, I should clarify that Sterne Agee isn't always wrong on its bets. For example, it picked Activision Blizzard
How to lose in the market without really trying
That's amazing when you think about it. When Sterne Agee could literally improve its performance by flipping a coin to pick its stocks, who needs the plethora of analysts?
Still, seeing as the country's in crisis, and the economy appears to be collapsing, I don't want to be responsible for making our unemployment figures any worse. So let me make a less drastic suggestion: Make more obvious bets. Specifically, buy cheap stocks, and don't get discouraged if they get cheaper (instead, buy more).
For example, even after yesterday's buying frenzy, Noble still sells for a mere 5 times earnings, and NOV for just 6 times. This, despite the fact that analysts expect both companies to keep on growing their earnings at better than 20% per year over the next half decade.
Foolish takeaway
Valuation-wise, there's simply little reason not to own these companies -- and no reason to follow Sterne Agee's advice today.
