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Downgrades Gone Wild


Analysts acting negatively on good, bad news.

Are analysts nervous? You bet they are.

In recent days and weeks analysts have become trigger happy, downgrading stocks on any news at all. Who can blame them given market performance for the last few months? We can expect to see this type of action until either the economy or the market finds its sea legs. Let's look at one example this week.

Yesterday Western Digital (WDC), a leading disk drive manufacturer, issued guidance for the quarter. As a shareholder, when I saw the headlines for WDC coming across the tape my palms started to sweat and my collar seemed awfully tight. Nervously I opened up the news story and went through the details.

Well the news wasn't good. It was great. WDC raised earnings guidance by 22% and I was able to breathe a sigh of relief. What was the reaction from the analyst community? You guessed it. Two downgrades, two neutrals and one positive mention. Hardly anything to write home about.

This is just a sign of the times. Analysts in all industry groups are just as nervous as you are about their stocks and are taking any opportunity to lock in returns. Yes, I know WDC has had a decent run but I like stocks with double digit growth and single digit multiples. Call me crazy, that's just me.

I'm not bringing this up to exploit the virtues of owning WDC and I certainly won't let a profit turn into a loss. However I must point out that everyone including analysts who downgraded are raising numbers. It's obvious the Komag acquisition is starting to bear fruit as the company continues to execute and deliver on the bottom line. Thank heavens it didn't report in line or the stock would have been decimated.

I bring this up mainly to talk about how the environment has changed. A year ago a report like this would have prompted high fives and upgrades. A year ago the glass was half full. Today, I guess it's half empty.
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Position in WDC
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