Presentation on theme: "The Need for Independent Research Coverage How research & analyst coverage affect valuation and increase investors interest."— Presentation transcript:
The Need for Independent Research Coverage How research & analyst coverage affect valuation and increase investors interest
Facts: Investors & money managers face abundant information. They often perceive that stocks with little or no analyst coverage are simply unworthy of attention. The absence of research coverage has significant effect on the valuation of companies. > if there is research, companies gain considerably more investor interests, liquidity improves and the spread between the bid & offer price narrows so the shares become more attractive to buyers. > the absence of research shares can be expected to trade 32% lower than if they had even one analyst following & the spread in the price would narrow by 50%. ( According to a study conducted by Equity Development research firm.) Over 4,000 publicly traded companies have no discernable analyst coverage. About 25% of stocks traded on the NYSE have no coverage. ( According to Reuters )
A Large Pool of Companies are ignored by Wall Street Research Departments Wall Street Firm Number of Companies Covered Number of Industries Covered Company's Average Size Decile* 1Salomon Smith Barney2,595598.2 2Merrill Lynch2,299588.3 3Credit Suisse First Boston2,080578.5 4Morgan Stanley1,980588.5 5Lehman Brothers1,891558.4 6Goldman Sachs1,888578.6 7Banc of America Securities1,747558.1 8UBS Warburg1,739588.3 9CIBC World Markets1,677558.0 10Bear Stearns1,634548.2 11JP Morgan1,627558.4 12Deutsche Banc Alex Brown1,493578.4 13Prudential Securities1,409548.3 14Dain Rauscher Wessels1,168527.7 15AG Edwards1,159558.3 *Company's Average Size Decile is a mean measured of company's size (CRSP decile, 10 is the largest) *IBES Detail Recommendation file compiled between 1996-2002
Where is the Attention? The number of companies without analyst coverage is significant! Research Groups Number of Companies Covered Investment Banks2,074 Independent Research Firms1,117 Brokerage Only Firms670 Total3,861 *IBES database for period 1990-2000 Of the 9,000 publicly traded companies shown on Reuters database, about 1/2 of the stocks have any analyst coverage & only 1/3 are monitored by more than 6 analysts
Sizing the difference: Market CapitalizationNumber of CompaniesPercentage of Index Market Cap > $1 Billion1,31725% Market Cap < $1 Billion3,92575% Market Cap < $0.5 Billion3,27662%
The need for independent research coverage Many institutional and hedge fund investors rarely get their ideas from Wall Street research coverage Investors & money managers are yearning to get back to the fundamentals of analysis and proprietary studies. They want independent, unbiased, untainted researchproprietary information Data from Investars (independent service tracking performance of analysts stock picks) shows that stock picks by six of the better known independent research firms, on average, have outperformed a half-dozen Wall Street firms over the last 5 years Wall Street analysts are dropping away from covering small caps and focusing more on large caps, according to Majestic Research. Since late 2003, the number of smaller companies with any following at all has plunged
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