The stellar performance of Wall Street analysts is a big slap across the face of cynical investors who say these professionals are just shills pushing stock. Analysts from time to time can miss potential winners and be too late to downgrade losers. But the profession has worked to live down the bad reputation it earned in the wake of the dot-com bubble. Large research firms in 2003 paid upwards of $900 in disgorgement and agreed to reforms to settle allegations of issuing overly positive research on companies to lure investors to buy.
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But at least this year so far, the analysts have been right on target. And as a result, investors are paying attention to stocks that analysts like going forward.
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Don't think the analysts' hot hand was due to one or two lucky picks that gained huge and yanked the average up. Of the 20 top recommended stocks, 13 have beaten the market so far this year. Just four of the analysts' top "buy" recommended stocks are down. Besides, analysts didn't just nail the winners but also correctly warned about the losers. The 20 stocks that analysts liked the least going into 2014 are up 6.4% this year, trailing the average gain of the other stocks in the S&P 500.
Some of the calls were undeniably on target. Tax preparation company H&R Block was analysts' absolutely favorite stock going into the year. And it was a perfect call. Shares of the company are up 15.6% this year, which is roughly twice the 8% gain of the S&P 500 this year. Analysts expected the company to turn in rapid 28% earnings growth in its critical April quarter, and the company delivered.