Editor's note: Wall Street analysts don't always have the answers. And according to Pete Carmasino from our corporate affiliate Chaikin Analytics, investors who fall in love with Wall Street's advice are playing a dangerous game. In this piece – which was first published in the October 19 issue of the Chaikin PowerFeed e-letter – he shares how to avoid bad calls with the help of one useful tool...
The Best Way to Avoid the Big Banks' Bad Calls By Pete Carmasino, chief market strategist, Chaikin Analytics
"Bottom fishing" is the most expensive sport in America... That's another name for buying a stock just because its price is lower than it was before. It might look like a bargain. But in many cases... it's a trap. Trying to time the bottom is often a fool's errand. It just leads to more losses. Bottom fishing happens more than you think, too... Wall Street analysts are often forced to make calls on popular stocks that trend lower. And a lot of times, these analysts try to produce some sort of silver lining for investors. We'll talk about one of these popular stocks today. Back in September, two analysts made "bullish" calls on it. They were practically begging investors to buy shares. But from my perspective, they were dead wrong. Fortunately, as I'll explain, you only need one tool to help you avoid bad calls like these...
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I'm talking about our Power Gauge system at Chaikin Analytics. The Power Gauge is a tool we use that gathers investment fundamentals and technicals into a simple rating. We'll use this system to look at First Solar (FSLR) today... You've likely heard this name before. It's a popular stock in the renewable-energy space. Specifically, it makes semiconductors that convert sunlight into electricity. As you can see in the following chart, First Solar is clearly in a downtrend. The stock has plunged more than 20% over the past five months. Take a look...  Notice that our proprietary "relative strength" indicator for First Solar turned negative in June. This indicator is important. It measures a stock's performance against the benchmark S&P 500 Index... When a stock is outperforming the S&P 500, it's a sign that the trend is on our side. And when a stock underperforms (like First Solar is doing today), it's a negative setup. But Wall Street analysts don't always consider price trends... For example, on September 23, analysts from BofA Securities (formerly Bank of America Merrill Lynch) called out a buying opportunity in First Solar. They said the stock was "mispriced" based on its valuation. The stock traded for around $162 per share at the time. It was already down around 10% over the previous month. But Wall Street analysts highlighted a bullish setup. And a lot of investors likely thought it was time to go bottom fishing. That would've been a big mistake... First Solar's stock continued to fall. Even after a recent jump, it now trades at roughly $155 per share. That's 4% below where it was when analysts said the stock was mispriced. Wall Street analysts weren't finished trying to bottom fish... Last month, a Barclays analyst upgraded his outlook on First Solar. He explained that the stock was trading at a discount to its peers in terms of its projected earnings for 2025. Folks, how can anyone know what 2025 will bring for this stock? The analyst set his target price at $224 per share. That's funny to me because the stock peaked at almost $232 per share in May. But again, price is just a number to some people. Our takeaway is simple... Don't try to bottom fish – even if Wall Street says you should. Make sure you consider all the factors before you decide to buy. First Solar might be popular – but it's underperforming today. And with the help of our Power Gauge system, we know to avoid this bad call. Good investing, Pete Carmasino
Editor's note: Marc Chaikin, the founder of Chaikin Analytics, built the Power Gauge system with one goal in mind... put Wall Street-level research in the hands of everyday investors. It's an incredible tool for volatile periods. Even during last year's sell-off, Marc's system pointed to the top 10 stocks of 2022 – enough to turn a $10,000 stake in each into a $163,300 profit. Now, Marc has teamed up with Ten Stock Trader editor Greg Diamond to develop an all-new way of making money in today's choppy environment. And it could boost your potential gains by hundreds of percent... regardless of whether the overall market rises or falls from here. Greg and Marc recently showed thousands of viewers how this "intelligent" software strategy works... and revealed the No. 1 way to handle your money in the coming weeks and months. Click here to learn all the details. Further Reading If you follow a system, you can succeed as an investor over time... no matter what the market is doing. But many folks aren't sure where to start. So to make sure you don't get lost in the "investing desert," our founder Porter Stansberry offered up some sage advice... Learn more here. "There's a right time to be offensive and a right time to be defensive," Greg writes. There are never guarantees in trading. Things can always go wrong. That's why it's so important to practice patience before potentially making a big (and careless) mistake... Read more here. |
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