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Analysts were wrong to trash these stocks

Sometimes a company seems to be on the right track when it is suddenly hit with a barrage of analyst downgrades. The stock price falters, more downgrades are issued and the stock falls yet further in a downward spiral of negative analyst feedback. It isn't the devil that makes analysts lash out at perfectly good companies, but there are often forces influencing analyst's opinions other than a company's fundamental value. You have probably heard the term “punish” used, and the term can be quite accurate; if an analyst feels mislead by a company, he can always retaliate by downgrading its stock. This reaction is personal at times, as analysts are sometimes given private assurances by their contacts within the companies they follow, not all of which bear out. Analysts do tend to play follow the leader as well, downgrading stocks in response the downgrades of other analysts.

The good news for investors is that when companies have strong fundamentals, the price depression caused by analyst downgrades tends to be short lived. Hence, if you are interested in a company, buying it after an analyst downgrade can be a good strategy, and making money is particularly satisfying when it also makes you smarter than the other guy. With that in mind, consider the following stocks, all of which appear to be excellent candidates for major contrarian victories. As always, use these ideas only as a starting point and do your own research before making any investment.

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.