Analyst Incentives and the Financial Characteristics of Wall Street Darlings and Dogs

Abstract

Wall Street darlings, stocks with consensus strong buy recommendations, tend to be stocks with recent positive EPS momentum and surprise, recent positive relative price momentum, and recent positive EPS forecast revisions. Darlings also have stronger balance sheets, in the sense of lower debt, and tend to have lower dividend yields. Finally, darlings also tend to have higher long-term EPS growth forecasts and lower book-to-market ratios. Wall Street dogs, stocks with consensus hold and sell recommendations, tend to have the opposite characteristics.

TOPICS: Equity portfolio management, security analysis and valuation, portfolio construction