Motley Fool: Wall Street projections represent mere guesswork

SUNDAY, DEC. 22, 2013

Q: Where can I find Wall Street’s projections for a company’s upcoming quarterly report? – M.M., Warsaw, Ind.

A: Expected earnings are published at a variety of online sites, such as (Enter a company’s ticker symbol there, and then click on “Analyst Estimates” on the next page.)

But consider not paying too much attention to these guesses. Many times they’re based on comments and guidance from the company itself. If a company is telling analysts what it expects to earn, and then earns it or exceeds the estimate, how impressive is that, really?

Fuller analyst reports, though, sometimes available via your brokerage, can be informative. They can deliver insights into a company’s health and competitive position as well as the challenges facing its industry.

Just be wary of estimates of future numbers, as the future is hard to predict accurately. And take ratings such as “strong buy” and “outperform” with a grain of salt, too.

Analysts issue very few “sell” ratings, as they’d rather not tick off companies that might give their employers business.

Q: What are “balanced” mutual funds, and should I invest in them? – G.K., Portland

A: Balanced funds hold both stocks and bonds, offering gains from stock appreciation and stock dividends, as well as income from bond interest. Many fund families offer balanced funds, often with different asset mixes. The Vanguard Balanced Index Fund, for example, aims to be about 60 percent stocks and 40 percent bonds.

You don’t necessarily need a balanced fund, since you can invest in separate stock and bond funds. Remember, too, to include some international exposure, for diversification. (Many foreign economies are growing much faster than America’s.)

My dumbest investment

Global Crossing was one of my stupidest investments. I lost five grand between the tech boom of the 1990s and the tech bust of 2000. I believed all the company’s hype about laying down fiber-optic cables around the world. – N.S., online

The Fool responds: Well, Global Crossing did have a network of fiber-optic cable. But that never stopped it from posting many years of net losses. The company failed spectacularly in 2002, as it filed for bankruptcy protection after having once been valued at more than $80 billion. It emerged from bankruptcy in 2004 with new shares – old shares became worthless, leaving those investors out of luck, as often happens with bankruptcies.

As recently as 2011, when Level 3 Communications bought Global Crossing, a Fool analyst noted: “Like its new parent, Global Crossing hasn’t produced a single quarter of profitability. The company, which boasts $1.1 billion in net debt, managed just $82 million in free cash flow over the trailing 12 months.”

When investing, try to separate a company’s grand visions and projections from its actual accomplishments and financial performance. Favor competitive advantages – and profits.

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