|Sensitive System |
UBS trips, and AMD gets a round trip
1. Advanced Micro Gets MicromanagedIn this week's Unfortunate Timing competition, UBS analyst Tom Thornhill is the undisputed champion.
On Monday, Thornhill decided that the recent decline in the stock of chipmaker Advanced Micro Devices ( AMD) had landed AMD in the realm of a fair valuation, near his $20 price target.
So Thornhill upgraded the stock from a reduce rating to a neutral. Of course, he pointed out that any significant drop in AMD's flash memory revenue wouldn't be good for the stock. How right he was. Later that day, AMD announced that flash memory sales, previously forecast to be flat at worst, were now expected to drop in the fourth quarter, resulting in an operating loss. AMD shares got hammered Tuesday, plummeting 26% to $14.83. And on Tuesday -- one day after raising his AMD rating from reduce to neutral -- Thornhill cut the rating from neutral to reduce. He cut his price target as well, from $20 to $12. Asked about the round-trip rating changes, Thornhill acknowledges his "unfortunate timing," but he says the reversal was a byproduct of UBS' proprietary system for managing stock ratings. If a UBS analyst has a reduce rating on a stock, Thornhill explains, and the stock's price dips below the analyst's target price, the system flags the stock for a rating change. If you don't change the rating, he says, the system will suspend coverage on the stock. So after AMD started closing below Thornhill's $20 price target last week, the analyst says he had a limited amount of time to change the stock's rating -- which he had to change again after AMD's preannouncement. To the system's credit, Thornhill says, it encourages a constant review of stocks and a heightened sensitivity to valuation and return. But given the volatility of the semiconductor stocks he follows, "trying to maintain the discipline of the system can be challenging," Thornhill says. "I wish the system allowed me a little more latitude," he says. "Occasionally with volatile stocks like AMD, you get tripped up like this."
2. PurchasePro Files in CourageYou think crime doesn't pay? Maybe it just doesn't pay enough for all the hard work that goes into it. That's what we decided this week after reading the Securities and Exchange Commission's civil complaint against five former executives at America Online, now part of Time Warner ( TWX), and defunct business-to-business software company PurchasePro.com.
|Hard Work |
The SEC's challenging charges