Qantas: How come nine analysts had ‘buy’ ratings?

Qantas Limited (ASX: QAN) yesterday announced a surprise profit downgrade – well a surprise to many, but not me. As I mentioned a few weeks ago, “Airlines are notoriously bad investments – In aggregate airlines globally lose billions most years.”  The share price subsequently dropped 18.7% to close at $1.155.

What was most surprising to me was that nine out of 13 analysts had a ‘buy’ or ‘strong buy’ rating on the stock before the announcement. How did they get it so wrong? I have several possible explanations for that.

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Blue Chips by name, not by nature

The following stocks are classified as being in the Top 100 stocks by the Australian Stock Exchange (ASX). Many financial planners have in the past and will be urging their clients to invest in these companies. I’ll be avoiding these companies, unless their performance improves dramatically. None of these stocks will be ten-baggers (i.e. stock price climbs to 10 times the current price). While the share price of these companies may rise, eventually prices track performance, and these companies have not performed brilliantly in the past. Read more of this post

How I rate a company – Part 2

In part 1 , I listed 12 criteria I use to rank all the companies I analyse, based on their historical performance. In this post, I’ll discuss each of the points and why I see them as important.

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