In a study of analyst recommendations at the major brokerages, for the underlying components of the S&P 500, Facebook Inc (NASDAQ:FB) has taken over the #23 spot from Red Hat Inc (NYSE:RHT), according to ETF Channel. Below is a chart of Facebook Inc versus Red Hat Inc plotting their respective rank within the S&P 500 over time (FB plotted in blue; RHT plotted in green):
In forming the rank, the analyst opinions from the major brokerage houses were tallied, and averaged; then, the underlying components were ranked according to those averages. Investors often interpret analyst opinions from different angles — a popular analyst pick could mean that many sharp minds individually came to the same bullish conclusion, and therefore the stock should do well… but it could also mean that if the company makes any slight stumble, that would come as a negative surprise and cause a downward impact on the stock.
From the other direction, when companies have a low rank among analysts, it isn’t necessarily the case that investors should conclude that the stock will perform poorly. It can mean that of course, but a bullish investor who can make a case for a positive future catalyst could also take the contrarian angle and recognize that there is lots of room for upside since the stock is presently so out of favor.
For these reasons, we at ETF Channel find value to putting together these rankings, because both the top and the bottom ends of the lists can often make for some interesting stock picking ideas for further research.
Below is a three month price history chart comparing the stock performance of FB vs. RHT:
According to the ETF Finder at ETF Channel, FB and RHT collectively make up 8.67% of the First Trust Cloud Computing ETF (NASDAQ:SKYY), which is trading higher by about 0.6% on the day Tuesday.
FB is currently trading up about 0.8%, while RHT is off about 1.3% midday Tuesday.