Too Much Coverage
Is there a point when there are too many analysts covering a single company? YES and.. NO. First YES:
Why do we need so many people pouring through the company’s papers to analyze a company especially if everyone feels the same way about the company. I don’t see any value in one analyst saying the stock will go up to $100, while another analysts says the stock will go up to $101. Stocks that have a lot of coverage usually don’t have many surprises unless the companies are able to keep their secrets safe. Yesterday the Wall Street Journal reported that Apple was developing the a CDMA phone for Verizon, and there has already been news of a new iPhone 4G being released this year. This news resulted in a 1% to 2% pop today. If the secrets can’t be kept safe, you can be more sure that the stock trades “efficiently”, meaning that all the news should about the company are included in the stock price. With that in mind, that also means that the stock has been valued correctly and any chance of picking up the stock when it is undervalued is slimmer. These analysts are competing for readers just like the author of a new book. They want to cover companies that are hot.
And now NO:
A lot of coverage can also be a good thing because it can create more buzz for buying. The more investors interested in purchasing the stock, the higher the price will go. That’s just basic supply and demand. Here is an article that I read about how stocks with a lot of coverage but where opinions/prices vary have more potential for gains. I think that’s very reasonable because if everyone agreed on the target price of the stock, then that’s where the stock would be selling at but when analysts disagree, then the stock could be discounted a bit.
Here is a good article where analyst estimates are reviewed for AAPL. There are more than 45 analysts covering AAPL. I’m particularly interested in AAPL these days because I own the stock and I want to see one of the new iPADs!