Something about the stock reports produced by Standard & Poor's, a division of McGraw-Hill
The source of the confusion is S&P's habit of giving two sets of opinions when evaluating a stock, but providing little explanation of how the opinions interrelate. As a result, for any given company, a single S&P stock report can simultaneously tell an investor that the stock has lousy prospects, is highly overvalued... and is definitely a "buy." (Or conversely, that investors should "hold" or "sell" an undervalued prospect with a brilliant future.)
According to the Journal's story, the divergent views arise because human analysts review a company's numbers and decide whether the stock is a "buy," "sell," or "hold." But at the same time, S&P's computers are whirring in the background, chewing over the same numbers, and spitting out "quantitative evaluations" of the company's fair value and business outlook. S&P prints both human and non-human conclusions in the stock reports, but gives little clarification of how the two conclusions are produced, and little explanation of contradictory conclusions when they crop up.
Just for fun, I checked the S&P reports on the first 10 tech and industrial leaders that came to mind, to see how S&P's human analysts and computer counterparts viewed them. Lo and behold, the results for six of the 10 were divergent:
Now, don't get me wrong. At The Motley Fool, we think that differing points of view on companies and their prospects is a good thing. Stocks picked in Motley Fool Hidden Gems are not just recommended and forgotten -- they have to survive intense questioning by a disinterested analyst and constant review, over subsequent months and years.
It would be nice if S&P could explain its methodology a little more clearly. Fortunately, S&P says it will do just that in future versions of its research.