TipRanks
1
All posts from TipRanks
TipRanks in TipRanks,

Did you know… Investors Are More Likely to Earn a Positive Return By Following the Recommendation of a Stock Covered By Fewer Analysts?

Did you know investors are more likely to earn a positive return by following the recommendation of a stock covered by fewer analysts?

According to When Are Analyst Recommendation Changes Influential?, published in 2010 in the Oxford University Press , analyst recommendations can impact stock prices.

There are several factors that determine if an analyst’s recommendation is influential. The article notes that a recommendation is more likely to be influential if it is made on a stock that is covered by fewer analysts. It is much more difficult to obtain an influential recommendation on a popular stock because there is a wider variation of opinions.

For example, Galena Biopharma, Inc. (NASDAQ:GALE) is officially covered by six analysts, four of whom have rated the stock within the past three months. While three analysts have bullish ratings on the stock, Cantor Fitzgerald analyst Mara Goldstein currently has a Sell rating on Galena. She has made five bearish ratings on Galena since February 2014 and has made seven total recommendations on the stock since initiating coverage in 2013.

Since Goldstein’s first bearish rating Galena Biopharma on February 18, 2014, the stock has fallen from $3.79 per share to $2.82 just one month later, at which point she reiterated a Sell rating on the stock. A few weeks later on April 11, 2014, the analyst reiterated a Sell rating on Galena once again as the stock price slipped to $2.06. Most recently, Goldstein reiterated a Sell rating on Galena on August 7, 2015 when shares slipped to $1.51. This pattern demonstrates how every bearish rating on Galena Biopharma made by Goldstein influenced the stock’s price over the past two years.

As such, Goldstein has earned a 100% success rate recommending Galena Biopharma with a +37.1% average return per recommendation when measured over a one-year horizon and no benchmark.