January 18, 2024, Chicago, IL The companies Carvana CVNA, CrowdStrike
Holdings CRWD, and Advanced Micro Devices AMD are highlighted in today’s
Zacks Investment Ideas column.
The Art of the Pullback Purchase: Five Important Considerations and Samples
Purchasing stock market pullbacks is a method that is frequently suggested, but
it is not always easy to implement. Even if the idea is buying assets after a brief
drop in price, it can be difficult to predict when these pullbacks will occur (and
you never know if they will be temporary or not). Emotional variables that
affect trading performance, such as fear and uncertainty, can also impair
judgement. On the other hand, astute investors stand to gain significantly.

While seeking for pullback possibilities, keep in mind the following five
factors:

A Robust Previous Increase in

Buying a pullback within an upswing is sometimes mistakenly confused by
novice investors with purchasing weakness. Since equities typically emerge
from consolidations in the same direction that they entered, buying dips
following a strong prior rise significantly boosts the likelihood of success.

Straight Back

There are differences in the types of pullbacks. Retractions that are consistent
and well-managed are the finest pullbacks to purchase. In addition to offering a
clear entry point, these retreats imply that any selling is simply profit-taking
rather than a peak in the stock, which is advantageous to investors.

A Moving Average

A moving average is a useful tool for investors because it evens out price
swings over a certain time period, giving them a point of reference, a risk
management tool, and a clearer trend perspective.

Decrease in Volume

On a downturn, it is optimistic when volume dries up since it indicates weak
selling pressure and a lack of confidence on the part of bears. When the stock
tries to turn upward, watch for the volume to increase and to decrease during
pullbacks.
The primary forces behind changes in stocks and indexes are catalysts:
fundamental catalysts. To take full advantage of the opportunity, investors
would be better off identifying catalyst-driven products and employing technical
analysis to time them.

Before choosing to Buy, Sell, or Hold a company, investors frequently consult
Wall Street analysts’ advice. Do rating changes by these brokerage-firm hired
(or sell-side) analysts actually important, even if media stories about them
frequently impact a stock’s price?

Based on actual recommendations (Buy, Hold, Sell, etc.) from 27 brokerage
firms, Advanced Micro presently has an average brokerage recommendation
(ABR) of 1.54 on a scale from 1 to 5 (Strong Buy to Strong Sell). ABR 1.54
roughly denotes the range between a buy and a strong buy.
Nineteen are Strong Buys and one is a Buy out of the twenty-seven
recommendations that yield the current ABR. Of all suggestions, 70.4 percent
are classified as Strong Buys and 3.7 percent as Buys.

Trends in AMD Brokerage Recommendations

Even though the ABR recommends purchasing Advanced Micro, it might not be
a good idea to base your investing decision only on this data. Numerous studies
have demonstrated that brokerage suggestions have little to no success in
helping investors choose equities with the highest potential for price growth.
Are you curious as to why? Brokerage firms have a strong positive bias in the
stocks they cover, which causes its analysts to have a vested interest in the
stock. Our analysis indicates that for every “Strong Sell” suggestion, brokerage
companies award five “Strong Buy” recommendations.
Put differently, their objectives don’t necessarily coincide with those of regular
investors, and they hardly ever predict where a stock’s price might go.
Consequently, the most beneficial application of this data may be to corroborate
findings from your own studies or an indicator that has a track record of
accurately anticipating changes in stock prices.
Our unique Zacks Rank stock rating methodology, which has an exceptional
track record of being externally audited, divides companies into five groups:
Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell). Zacks Rank is a
useful predictor of a stock’s price performance in the near future. Thus, a
lucrative investment selection might be made effectively by employing the ABR
to validate the Zacks Rank.

You Shouldn’t Mix Up ABR And Zacks Rank

Zacks Rank and ABR are two distinct metrics even though they are both
presented on a scale of 1 to 5. The only factor used to calculate the ABR, which
is usually shown in decimals, is broker recommendations (such as 1.28). In
contrast, the Zacks Rank is a quantitative approach that leverages the impact of
adjustments to earnings estimates. Whole numerals are shown, ranging from 1
to 5. Brokerage firm-employed analysts have been unduly optimistic in their
recommendations, and they still are. Due to the vested interest of their
employers, these analysts mislead investors significantly more often than they

provide guidance, as their ratings are more positive than their research would
justify.
On the other hand, the Zacks Rank is primarily based on revisions to profit
estimates. Furthermore, empirical evidence demonstrates a robust relationship
between near-term stock price changes and trends in earnings estimate
revisions.
Moreover, Zacks Rank’s various ratings are applied proportionately to all stocks
for which brokerage analysts offer earnings projections for the upcoming year.
Put otherwise, this technology always keeps the five levels it assigns in balance.
Freshness is another important distinction between Zacks Rank and the ABR.
When you look at the ABR, it may not be current. However, because Zacks
Rank reflects brokerage analysts’ activities rapidly enough and they constantly
update their earnings projections to reflect a company’s shifting business
patterns, the Zacks Rank is always current in predicting future price
movements.

Is It Worth It to Invest In AMD?

The Zacks Consensus Estimate for Advanced Micro’s current year, which is set
at $3.49, has not altered over the last month when it comes to adjustments to
earnings estimates. An unchanging consensus estimate suggests that analysts’
stable opinions about the company’s profits outlook may be a valid explanation
for the stock’s near-term market-beating performance.
Zacks Rank #3 (Hold) for Advanced Micro is the consequence of the magnitude
of the most recent shift in the consensus estimate plus three additional elements
pertaining to earnings estimates.