Analysts and the Fed

Two completely separate points I’d like to make this morning.

The first is regarding an analyst call on Garmin (GRMN) yesterday, one day before the company was slated to report second quarter results. As many of you know, GRMN is the leading maker of global positioning systems (GPS). American Technology Research decided that it was a good idea to initiate coverage of the stock yesterday, ahead of earnings, with a “sell” rating and a $75 price target, with the shares trading at $95 per share.

These types of calls are always intriguing to me. First, Garmin has blown away numbers for the past couple of quarters. The company is taking market share and the GPS business is growing rapidly. If anything, the company would have better odds of having a great quarter than a poor one. It’s true that Garmin’s competitors posted bad quarters already, but that is likely due to Garmin kicking their butts.

Second, why would you want to make a call without any information on Q2 or the outlook for the rest of 2006? With Reg FD in effect, there is no way a company is going to leak to anybody how the quarter went. Essentially, the analyst is completely in the dark about current fundamentals at Garmin and yet still is sticking his/her neck out to recommend investors sell.

This is yet another example of why investors shouldn’t worry if an analyst issues a negative report on a stock they own. If you have done your homework and believe in your investment thesis, use the weakness generated by these analysts (Garmin was down $5 per share yesterday to close at $90) to buy the stock at a cheaper price.

Garmin’s Q2 report this morning was another blowout. Earnings per share came in at $1.10 versus estimates of $0.94 and the company raised guidance for all of 2006. The stock has traded up as much as $15 per share in pre-market trading this morning.

On a completely unrelated note, the Fed Funds futures market is now indicating that traders are pricing in a 34% chance that Bernanke will raise interest rates on Tuesday. I am afraid that this assumption is highly optimistic. I would take the “over.”

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