On a brutal market day like Friday, Jim Cramer thinks it is important to remember that picking individual stocks still matters, even if it doesn’t always feel that way.
This is why Cramer decided to take a closer look at two peculiar pieces of research that surfaced on Wall Street in two large-name stocks. On Dec. 1, Morgan Stanley upgraded British drug company AstraZeneca to overweight from underweight, and Bank of America Merrill Lynch downgraded large engine maker Cummins to underperform from buy.
Why was this strange?
Cramer found these actions unusual because typically analysts will only upgrade or downgrade a stock by one notch at a time. So, if it has a buy rating, they will take it down to a neutral, and then later maybe downgrade it again to a sell.
“You know that I never take this sell-side research as gospel, and you shouldn’t either. But following these Wall Street analysts can be an important part of your homework,” the “Mad Money” host said.
Analyst upgrades and downgrades can tell investors a lot about the general sentiment in a particular stock. That is why these two-notch re-ratings were so important to Cramer.
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So with Morgan Stanley’s monster upgrade of AstraZeneca, the analyst went from hating the stock to loving it pretty much overnight. The analyst found that the company is finally in a position to start benefiting from some major changes that the CEO made a few years ago, and it could have three huge drugs in the pipeline.
Cummins was a much different story. This stock has been hammered for the last 18 months. Yet, the analysts at Bank of America had a buy rating on the stock since January. It was clearly the right move for the analyst to downgrade it, but Cramer had to wonder why it took them so long to take action?
“I can’t fault Bank of America Merrill for downgrading Cummins right before the stock took a nasty 15-point hit, but given that these guys had a buy rating on the stock for the previous 42-point decline, I am inclined to take this downgrade with a grain of salt,” Cramer said.
Cramer wants investors to watch what analysts do, because it could affect portfolios. When analysts make grand gestures — that could be time to make a move.