The NASDAQ Composite Index has had its biggest rally in more than a year, so here come Wall Street's analysts, raising their stock ratings.
Goldman, Sachs & Co's Rick Sherlund, for example, on Friday boosted Microsoft Corp, capping a week in which the firm also upgraded Siebel Systems Inc, International Business Machines Corp and Vitesse Semiconductor Corp.
Goldman isn't alone. Analysts have made 151 upgrades on US technology companies since the NASDAQ started climbing April 5, outpacing the 49 they made in all of March, according to Bloomberg data. The rally itself, more than improvements in outlook for specific companies, is prompting the analysts' actions, money managers said.
"Analysts tend very often to move as a group," said Joe Stocke, who helps manage US$1 billion at StoneRidge Investment Partners in Malvern, Pennsylvania. "Once a trend starts in a certain direction, we see more and more analysts jump on it." From April 4 through April 19, the NASDAQ rose 33 percent as better-than-expected profit reports and a surprise interest-rate cut by the Federal Reserve buoyed investor optimism that stocks had seen their lows. The Standard & Poor's 500 Index climbed 14 percent over the same period.
Analysts may be quicker to raise ratings in a rally than they are to cut them in a decline. While good advice during both ups and downs can make money for investors, "buying tends to be what most people focus on," said Eric Wiegand, who helps manage US$7 billion for Credit Suisse Asset Management's private-client group.
Bloomberg data show more analyst downgrades in February 2000, when the NASDAQ rose 19 percent, than in April 2000, when the NASDAQ fell 16 percent.
To be sure, some upgrades have followed company reports that suggest the economic slowdown isn't hurting profits or sales as much as expected.
Sherlund's call on Microsoft, which returns the stock to Goldman's "recommended list" after a year at "market outperform," came after the company reported sales that beat expectations and profits that topped lowered forecasts.
Microsoft was also upgraded today by analysts at Salomon Smith Barney Inc and Thomas Weisel Partners.
Other changes have come without any good news from the companies involved. When Salomon's Jonathan Joseph raised ratings on eight semiconductor makers on April 11, he referred to signs that the slowdown in chip sales was "so bad it cannot continue for long." Including Joseph's, there have been 58 chip-stock upgrades from Wall Street firms in April. In March, there was one. The Philadelphia Semiconductor Index has surged 43 percent since April 4.
While analysts try to base ratings changes on a company's profit outlook or movements in its shares, most companies still see few signs that business is improving, Wiegand said.
"A lot of this is in anticipation" of an economic rebound later this year, Wiegand said. The effect of recent analyst upgrades "is somewhat muted because there isn't a lot of confidence or conviction behind them, both on the part of the analysts themselves and the consumers of their research."
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