Shares - projections etc

Cardinal-Red

To anybody who has seen my posts over the last few months it'll be obvious that I am just starting to get into this investing business. So far I am focussing on saving most of my monthly amount into growth focussed funds; but am investing £200 - £300 per month in some self researched shares (I say per month - 2 months so far )

I am getting to grips with the terminology and workings of the market and such like...

One of the stocks I am looking into is today valued at 1200. But there is a Fairfax report which says, amongst other things, "BUY - Valuation 1795"

Does this mean the author of that report things the shares' true value is 1795? Or is that just too obvious? I've seen a few reports like this (one linked to Morgan Stanley for example) with a few of the stocks. Is this basically analysts stating that they think shares are undervalued? Do you get the opposite happening also, i.e. them saying valuations are too high?

Reaper

Without looking at the report the simple anwer is yes, they are recommending buying becuase at the end of the period (eg a year) they think the price will reach that.

However these reports should be treated with some caution. Normally you have to pay for good up to date reports so what you are seeing might be old or by an unknown analyst.

I was once told (by an analyst) that top investment companies only read the reports of 1-2% of named people and discard the rest as noise. I don't know how true that is though.

It was the case that analysts tended to inflate their recommendations, particularly in the Far East where companies would threaten to sue if they came out with a business damaging "Sell" recommendation. It used to be the case that in some markets you would automatically subtract one recommendation to work out what the analyst really meant. So...
Strong Buy => Buy
Buy => Hold
Hold=> Sell
Sell => Strong Sell
Now I was only in the fringes of the industry, this was many years ago, and there were moves afoot to try to clean up the practice up so it probably no longer applies. I'm sure other posters here can confirm if this is no longer a problem.

Have a read of the report itself, not just the recommendation, and see if you you agree with the reasoning. Better still read reports from more than one analyst if you have access to them.

Cardinal-Red

Thanks Reaper.

I am trying to find the report (full) as I only had an extract on the discussion boards on III - I am using the virtual portfolio tool on HL to test out my theories on potential investments until I fully get my head around it. In the mean time, blue chips are my policy

cheerfulcat

Hello, Cardinal-Red,

There is an excellent ( IMO ) thread on Stockopedia dissecting various analysts' reports on a share I follow - link here; you may need to register but it's free. This may give you a feel for what's involved.

cashbackproblems

What is the name of the company? Your first action would be to research the company, its fundamentals, future prospects, the industry its in and compare it against its competitors etc, before looking at broker recommendations, which imo are usually inflated. However numerious high targets shouldnt be ignored completely.

For example im currently in aviva and over the last 12-18 months price targets have been at 470p+ even though its remained below 390p. Same with some reputation broker research i was forwarded on rbs/lloyds which now makes it look ridiculous what they were saying for short term prices!

Cardinal-Red

cheerfulcat wrote: »

Hello, Cardinal-Red,

There is an excellent ( IMO ) thread on Stockopedia dissecting various analysts' reports on a share I follow - link here; you may need to register but it's free. This may give you a feel for what's involved.

Thanks Cat! That's a really interesting looking site - I'll have a proper look through it!

Cardinal-Red

cashbackproblems wrote: »

What is the name of the company? Your first action would be to research the company, its fundamentals, future prospects, the industry its in and compare it against its competitors etc, before looking at broker recommendations, which imo are usually inflated. However numerious high targets shouldnt be ignored completely.

For example im currently in aviva and over the last 12-18 months price targets have been at 470p+ even though its remained below 390p. Same with some reputation broker research i was forwarded on rbs/lloyds which now makes it look ridiculous what they were saying for short term prices!

Hi - sorry wasn't being obtuse. The name of the company I always get wrong, but the code is POG. A mining company doing gold and iron.

The fundamentals look good - growing profits and cash flows, a pioneering extraction technique which is the lowest per oz (for gold) and the construction of new infrastructure (bridge) to faciliate the transport of iron into China etc.

I think the problems will be the risks inherent in the Russian and Chinese economies (even though POG is listed in UK and looking for FTSE100 membership)

cheerfulcat

Peter Hambro is the company, I think. Cardinal-Red, if you haven't already seen it, there's also a dedicated Mining Sector board on TMF, here. May be of some interest.

Cardinal-Red

cheerfulcat wrote: »

Peter Hambro is the company, I think. Cardinal-Red, if you haven't already seen it, there's also a dedicated Mining Sector board on TMF, here. May be of some interest.

Thanks again Cat.

I looked up the name and yes it did used to be Peter Hambro but is now Petropavlosk. More reading for me!