So you’re intent on starting to invest. People tend to ask
themselves “where do I start?” or “what information can I refer
to?” before setting off.
Do you read the hottest stock tips in a local investment guide? Peruse The Economist or Bloomberg for ideas? Or maybe look at the business pages of your local paper? Then there are also financial reports of companies issued on their Investor Relations (IR) page.
Although information sources vary and are wide-ranging, few individual investors actually make use of analyst reports.
In Japan, according to a survey by Nomura Investor Relations, in
2013 only 7.6% of Japanese investors cited “Analyst Reports” as a
source of information when deciding on which stocks to invest in.
In comparison, just over 33% of investors used the newspaper as one of their key sources. It is a stark illustration of how underutilised analyst reports are.
Key information sources for Japanese investors looking at new stocks (2013)
Analyst reports include not only BUY, SELL or HOLD ratings but
also a set “target price” which is a forecast on where they think
the stock price will be in 12 months’ time – based on performance
trends and a detailed fundamentals-driven analysis.
If you use it as one of your sources of information, you can make more educated investment decisions that will be based on a diversified stream of information.
Why are reports relevant?
So why should you use them? Here are three reasons why analyst
reports are useful for investors.
1. Comprehensive analysis by professionals
Analyst reports are based on a multitude of different investor sources. These can range from exclusive interviews with corporate executives and IR to a deep dive analysis of the corporate business model, operating environment and financial metrics.
At times, they can inform you of something which would not be obvious to the average investor and it can prove invaluable as a reference when considering what to invest in. Reports from analysts can also be used as a convenient snapshot summary of a particular stock.
2. Ratings can drive stock prices
A BUY, SELL or HOLD rating neatly represents an analyst’s evaluation of a stock. It presents why they believe a stock is worthy of that action yet it is not recommended that investors rely purely on this information. Instead, it should form only one part of your whole investment decision-making process.
Likewise, institutional investors (such as pension funds) refer to analyst reports when selecting which stocks to invest in. So when ratings on stocks change from, say, a BUY to a SELL then a stock may experience heavy selling in the market, and vice versa if a rating is changed from SELL to BUY.
3. Useful directional indicator for stock prices
As I mentioned earlier, the “target price” that analysts predict is the expected stock price for the 12-month period from when the recommendation was made. So the bigger the difference this is, versus the current stock price, then the cheaper the current stock price is.
At FIGS, we call this difference the “Potential Return”. You can check what this is by looking at the difference between the average target price (across all analysts) and the current stock price.
So given there may be times when the difference becomes quite sizeable (for example when the stock price plunges), it is critical that you judge the stock by your own standards and risk appetite rather than relying simply on a numerical value.
How can I get hold of analyst reports?
You can sometimes get analyst reports when you open an account
with a securities brokerage, in order to trade stocks.
Besides these brokers though, you can also access BUY, SELL or HOLD calls of brokers (along with target prices and other useful information) from a variety of websites listed below.
US market Zack’s Investment Research https://www.zacks.com/stock/research/equity-research.php?icid=zpi_research_rep_allreports Offers reports on US stocks (but requires you to register), along with market news and its own rankings.
NASDAQ https://www.nasdaq.com/earnings/daily-analyst-recommendations.aspx Although it doesn’t have analyst reports, changes on analyst ratings are published.
Singapore/Hong Kong markets Singapore Exchange’s “StockFacts” http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/stockfacts In addition to checking consensus analyst forecasts for Singapore stocks, you can sort stocks according to various metrics such as dividend yield, market capitalisation, Price-to-Earnings Ratio (PER) and much more.
SG Investors https://sginvestors.io/ A Singapore-based website that offers analysts’ comments on stocks and data related to target prices.
DBS Vickers Research (includes research on HK/China stocks) https://www.dbs.com/aics/insights.page Operated by DBS Vickers, the securities trading subsidiary of DBS Bank. It issues information on both Singapore-listed and Hong Kong-listed stocks such as target prices and ratings as well as various sector reports.
Japan market Japan Exchange Group https://www.jpx.co.jp/english/ Japan Exchange Group is a Japanese financial services firm that operates stock exchanges including the Tokyo Stock Exchange and Osaka Securities Exchange. It provides reports issued by a Stock Research Centre and Analyst Report Platform, all free of charge.
Shared Research https://sharedresearch.jp/en An independent research company. It offers a number of comprehensive reports on specific companies.
Handle with care
Originally, these reports were published for use by institutional
investors. Professional investors tend to compare information
analysed by multiple analysts and use them as one of the sources
for their investment decisions.
Even for individual investors though, the information can also prove useful for making investment decisions. However, it is not recommended that you only refer to these ratings and target prices when making an investment decision and instead compare multiple reports to ensure you are fully informed.
It is critical that you do not just accept analysts’ judgment without question. You should use analyst reports as a good starting base from which you can then incorporate your own analysis, and judgment on a potential stock investment.
Furthermore, it also helps to see how accurate an analyst has been in the past in terms of predicting the target price of a stock they cover.
If you don’t have time to read analyst reports then please visit FIGS. There, you will be able to view analysts’ forecasting accuracy using the FIGS Analyst Score as well as check potential returns of stocks and the number of BUY, SELL or HOLD ratings on them.
Nomura Investor Relations ”Nomura IR Monitor, Survey on investment attitudes 2013”
by Michihiro Soma, Japanese Editor @ FIGS
05 Oct 2018
(Please note that all views expressed in this article are solely my own and do not represent the opinions of FIGS or its related companies)
The information contained in the FIGS Blog is for your general information only and is not meant to constitute professional and/or financial advice. Please note that the use of the FIGS Blog is subject to the Disclaimers.