Don't Ride Wall Street's Seesaw

Investors will recall back in January when the research firm Bear Stearns (NYSE: BSC  ) sang the praises of Synaptics (Nasdaq: SYNA  ) after the tech company reported good earnings. At that time, the analyst who covers the company raised his opinion of the stock and forecast a price of $54 a share. I wrote a piece about how these price targets mean nothing. Foolish investors know to do their own analysis of stocks based on fundamentals, and not on guesswork from Wall Street "gurus."

Those familiar with the story will remember the collapse of Synaptics stock after the same analyst changed his opinion in February. In a note to clients, the analyst speculated that Apple Computer (Nasdaq: AAPL  ) would eliminate its outsourcing relationship with Synaptics in exchange for its own interface solutions. This commentary was followed by a cut in his so-called price target, which prompted a major sell-off in Synaptics shares. Not to be left behind First Albany also downgraded shares of Synaptics after issuing a "buy" recommendation just a week earlier. There was no valid reason that I could find to make any such claims, but that didn't seem to matter to the Wall Street brokerage firms. Shareholders were understandably nervous about the future of the tech company's prospects, and they headed for the exit signs. Ten days after reaching a closing high of $39.53 in early February, the stock was selling for only $22 and change. Ouch.

Now the Bear Stearns' analyst has changed his opinion yet again. Earlier this week, he said that while Apple has developed its own interface solution for the iPod using CypressSemiconductor's (NYSE: CY  ) chipset, Apple has not excluded the TouchPad technology from Synaptics. This has been the case from the get-go.

In fact, Synaptics confirmed in a recent 8-K filing that its interface was being used in Apple's new series of iPods. In his most recent commentary, the Bear Stearns analyst noted Synaptics' introduction of its MobileTouch technology for use in mobile phones. Correctly, he pointed out that this is a new and expanding market for the tech company.

Why Bear Stearns would make seemingly unsubstantiated claims is unclear, especially in light of the negative impact such statements would have on the company's share price. Taking a look back over the past few months, it became clear to me that brokerage firms in general have a habit of being more changeable than the weather.

For example, last November Bear Stearns issued a downgrade for Synaptics to "peer perform." In early January 2005, the firm upgraded the stock to "outperform." Only a month later another downgrade was issued along with a price cut, which prompted a 40% sell-off in the stock. Now, a little more than 30 days later, the very same analyst does a reversal by upgrading the stock, and issuing a higher price target. Can they not make up their minds?

This whole painful event should be a lesson to investors. Take what Wall Street says with a high degree of skepticism. The pros more often than not miss the mark. Fools know to think for themselves and not to rely on advice from brokers for investment decisions. Synaptics' fundamentals remain intact. As I said, I see good value in this stock and, as a result of these shenanigans, the stock price is more attractive now than before. So thank you, Bear Stearns, for getting it wrong.

For more Foolish insight check out Synaptics' Ups and Downs.

Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.


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