Sell-side analysts in general have a distinct growth-stock style bias, according to research by Chicago Investment Analytics Inc.
Analysts appear to rate the attractiveness of stocks "from the same perspective as a growth-oriented manager," the research found.
"Analysts' top picks typically have high future growth expectations and recent price momentum," it says, which might describe a growth style. "Analysts don't appear to be particularly price sensitive or risk adverse," which might characterize a value style. "Analysts are trend followers, not contrarians."
The research suggests analysts like growth stocks because it's "much easier for institutional salesmen to get portfolio managers excited about a high growth opportunity (e.g., the next Microsoft) than some depressed value stock," or "contrarian turnaround situation."
Also, analysts like growth stocks for another reason "more subtle," because "high growth companies are better prospects for investment banking services. Companies don't generally hire investment bankers who are panning their stock."
"The growth-oriented style of sell-side analysts tends to make their recommendations more appropriate for growth managers than value managers," the study concludes.
The distinct growth style of analysts is a "hidden form of bias that could cause problems" for portfolio managers who want to make sure they understand how analysts evaluate stocks.
