Wall Street analysts never run out of things to say... For example, last week, a UBS analyst heaped praise on Yum Brands (YUM) in a research report.
Don't Let This 'Analyst Anecdote' Rule Your Portfolio
By Marc Gerstein, director of research, Chaikin Analytics
Wall Street analysts never run out of things to say...
For example, last week, a UBS analyst heaped praise on Yum Brands (YUM) in a research report. Yum Brands operates fast-food brands KFC, Taco Bell, and Pizza Hut.
The report cited a survey from UBS that showed strong brand perception and customer satisfaction for Yum Brands' portfolio. And it highlighted Yum Brands' everyday promotional opportunities and recession resistance.
Finally, UBS called the stock more attractive today than fast-food giant McDonald's (MCD).
That's all well and good. Everyone is entitled to their own opinions and analysis. And an upbeat report like that could easily persuade investors to buy Yum Brands' shares.
Don't fall into this trap.
You see, these opinions come from only one analyst (and his team) at one Wall Street firm.
We don't know whether it's a mainstream view or an oddball outlook. And more to the point, we don't know if this single opinion will move the stock meaningfully higher or not.
Fortunately, with the Power Gauge's help, we can get a much clearer picture...
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Analysts are investment experts. And what they say about any stock does matter.
But what this one UBS analyst said about Yum Brands isn't data. It's an anecdote.
For a better view, we need to see data. And for that, we can turn to the Power Gauge...
Three of the Power Gauge's 20 factors are based on analysts' work. And right now, Yum Brands ranks poorly in all three of these factors...
Yum Brands is rated as "very bearish" for analyst rating trend. That factor compares companies based on a four-week improvement in the stock's average analyst rating.
The company is also rated as "bearish" for both earnings estimate trend and earnings surprise.
Earnings estimate trend favors companies whose earnings-per-share estimates have improved the most over the past 13 weeks. And earnings surprise compares companies based on the trend in recent surprises. It favors companies whose reported results most exceeded analysts' estimates.
Now, these poor grades don't necessarily mean the UBS report is flawed.
But with the Power Gauge, we're focused on how multiple analysts weigh against each other. And ultimately, we only care about information that can move the stock.
Through this single report, we've learned what UBS thinks about Yum Brands' perception, promotions, and supposed recession resistance. But this information doesn't necessarily move stocks.
We aren't told about changes in the ratings or estimates from UBS. And we don't know if Yum Brands beat or fell shy of the Wall Street firm's previous estimates.
We're also told only about UBS, of course. We don't know about how all the other analysts who cover Yum Brands resolve these issues.
Plain and simple, the Power Gauge doesn't play favorites...
It doesn't listen to one analyst and ignore all the others. It aggregates the data of all the analysts who cover Yum Brands (and roughly 5,000 other companies).
More importantly, it compares analyst-related data on Yum Brands to analyst-related data on all other stocks. Who cares if Yum Brands' analysts love the stock if other analysts love the stocks they cover more?
The Power Gauge also puts the analyst data into context...
Wall Street analysts contribute to stock movements. But they aren't everything. That's why the Power Gauge uses 17 other factors to make up its overall rating.
In Yum Brands' case, the "smart money" and short sellers favor Yum Brands. We can see that through the Power Gauge's Chaikin Money Flow and short interest factors, respectively.
So UBS isn't necessarily alone in its optimistic outlook for Yum Brands.
However, the factors relating to valuation and fundamentals range from "neutral" to bad. And when you add it all up, the Power Gauge gives Yum Brands a "bearish" overall ranking. (By the way, the Power Gauge is also "bearish" on McDonald's today.)
Folks, the takeaway is simple...
A disciplined, data-driven approach pulls you away from one-off reports like the one from UBS. With the Power Gauge's help, we can get a much clearer picture about Yum Brands.
Don't let analyst anecdotes rule your portfolio. That's especially important when the aggregate data goes against the compelling story of the day.
Good investing,
Marc Gerstein
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
+1.32%
1
22
7
S&P 500
+1.79%
90
286
121
Nasdaq
+2.02%
16
57
27
Small Caps
+2.16%
334
1049
467
Bonds
+1.58%
Utilities
+3.13%
17
11
0
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are somewhat Bearish. Major indexes are mixed.
* * * *
Top Movers
Gainers
SEDG
+11.85%
ENPH
+8.02%
DXCM
+7.73%
BAX
+7.45%
MTCH
+6.86%
Losers
APA
-3.04%
ODFL
-2.95%
HAL
-2.85%
EOG
-2.60%
MRO
-2.35%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
SITE
DOCU, RH, ZS
No earnings reporting today.
Earnings Surprises
CPRT Copart, Inc.
Q4
$1.17
Beat by $0.03
GME GameStop Corp.
Q2
$-0.52
Missed by $-0.22
WLY John Wiley & Sons, Inc.
Q1
$0.36
Missed by $-0.31
* * * *
Sector Tracker
Sector movement over the last 5 days
Utilities
+3.75%
Discretionary
+2.84%
Health Care
+1.87%
Real Estate
+1.58%
Financial
+1.30%
Materials
+1.01%
Industrials
+0.93%
Staples
+0.47%
Communication
-0.26%
Information Technology
-0.87%
Energy
-2.73%
* * * *
Industry Focus
Retail Services
17
47
36
Over the past 6 months, the Retail subsector (XRT) has underperformed the S&P 500 by -6.72%. Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #10 of 21 subsectors and has moved down 1 slot over the past week.
Indicative Stocks
CVNA
Carvana Co.
GES
Guess', Inc.
PRCH
Porch Group, Inc.
* * * *
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