Sunday, April 27, 2008

Bizarre inanity from the financial analysis world

In general I try to ignore the various bleatings of stock pickers. Given the mountain of evidence in favor of the efficient market hypothesis, claims of successful stock picking should be generally lumped in with schemes for perpetual motion machines.

However, sometimes something truly ludicrous crosses my eyes & keeps them crossed. I've previously, but now I get to pick on someone calling a stock a buy.

The stock is (surprise!) Millennium, which is diligent to inform us is still a buy in their opinion. When I saw the headline I did a double-take, and then had to read the article. It's just as bizarre as I expected. The author describes a complex analysis leading to a target price of $25, miraculously the same as what Takeda is offering. They note all sorts of good news which might occur to Millennium.

But that's irrelevant, as Takeda has set the price for MLNM: $25/share. Given that MLNM has accepted the offer, the price ain't going higher without another bidder -- and unlike eBay auctions bidders don't tend to swoop in at the last minute. Indeed, Zacks isn't saying "buy this because the price will go higher". Yes, MLNM is currently priced a bit south of $25, but that's because there is really a difference of getting $25 when the deal closes versus getting money today. The gap prices in the transactional costs, the time value of getting (or giving) money now, and the tiny risk the deal won't go through -- but Zacks doesn't comment on any of those. Nope, according to them you should buy because MLNM might have good news!

It should be noted that Zacks in Feb called MLNM a buy with a target of $18. Either they got lucky or they really can pick. However, nowhere do they explain how the calculations really changed between then and now -- supposedly they plugged new numbers in and got a new value. But which numbers changed & why? No talk there.

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