US Analysts Still Hate "Sell" Ratings

Windmill_2_lgIn this corporate earnings environment, there should be ample opportunities for analysts to put “sell” ratings on stocks. Of course, there was the famous call a few days ago when one enterprising securities researcher had the guts to say GM (GM) shares would fall to zero. He probably still kept his “buy” rating on the stock.

New evidence has come up that “sell” ratings are scarce as hen’s teeth, at least in the US.

Research from Thomson Reuters StarMine shows that 18% of European analysts have “sell” ratings or the equivalent on stocks that they cover. The number in the US is less than 7%. According to the FT, “Equity research departments around the world have become much more bearish since the start of the year, but US analysts remain markedly more bullish on stocks than peers elsewhere.”

Relative to economies and corporate earnings in other regions, there is no reason for analysts in the US to be more willing to support the firms that they cover. It does investors a tremendous disservice. And, it makes the analysts look like fools.

There has never been an adequate explanation of why American analysts seem to love the companies that they cover so ardently. Some will say that putting poor ratings on companies takes away access to management. Some probably still think they are helping the investment bankers at their companies by keeping relationships which could lead to business.

Or, perhaps Wall St. researchers don’t have guts to have the corporations that they cover give them a hard time.

By all rights, almost every stock in the market should be a “sell.” But, in a world full of layoffs, why bite the hand that feeds you?

Douglas A. McIntyre