Gordon Pape: Are Brokerage Reports Too Optimistic to Follow?

Gordon Pape | July 13th, 2020

As the stock market remains unpredictable in pandemic times, Gordon Pape advises a reader on the validity of optimistic brokerage reports. Photo: Krisanapong Detraphiphat/Getty Images

Brokerage reports have optimistic target prices and rarely advise selling. Are they credible?

Q – I have access to different analysis on stocks, including Morningstar, Argus, Thomson Reuters, and TD. They all suggest target prices on stocks, most of the time higher than at present, and they very rarely suggest selling. These days, it is very easy to find reports suggesting returns of over 50 per cent for the next 12 months.

What is the value of these reports? They all seem to be based on a coming return to a normal economy and they all seem to forget about the risk of the current context and recession.

These reports are prepared by competent and honest people. But I do not know to what extent they can be useful for investors. – Marcel B.

A – There are many divergent views of stocks these days, because of the tremendous uncertainty we face. These reports can provide useful insights but read them carefully to see if they make sense in the context of your own knowledge and objectives. Forget about price targets – I think they are meaningless right now. Rather, look for references to strong balance sheets, dividend sustainability, and growth potential in the current environment. That will help you to decide which reports have credibility in relation to your personal requirements. – G.P.

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