CNBC’s Jim Cramer on Tuesday reminded investors to pay close attention to the scope of an analyst’s calls.
“In the crazy world of Wall Street, it’s not enough to think about the company or the sector or the asset class or the macro, including the [Federal Reserve] – You also have to consider the reaction and even the reactors themselves,” he said.
He used recent analyst calls on Advanced Micro Devices to illustrate his point:
Barclays upgraded the semiconductor maker to overweight from equal weight on Monday, sending the stock up 10%. A day later, Bernstein downgraded the company’s stock to “Market Perform” from “Outperform,” citing concerns about a deteriorating PC market. AMD’s shares fell 2.39%.
Cramer said that in this case, neither analyst is necessarily wrong because their arguments are based on different time frames.
“The bearish analyst [is] like rain because AMD’s business is terrible now and showing no signs of improvement, but over the long term the optimistic analyst will be right because eventually the downturn will end in semiconductors,” he said.
Cramer added that while these trading periods can be confusing, they can also be beneficial for investors as long as they don’t act rashly.
“As we get to the heart of earnings season, you need to understand that depending on your time frame, the reaction is often right. However, it can also be wrong,” he said, adding, “Either way, if you have conviction, the reaction can often be a great opportunity to buy, buy, buy or sell.”
Disclaimer; Cramer’s Charitable Trust owns shares of AMD.
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