Wall Street Bulls Are Bullish on Amazon (AMZN): Should You Buy?

When deciding whether to buy, sell or hold a stock, investors often rely on analyst recommendations. Media reports of rating changes by these analysts employed (or selling) at brokerage firms often influence a stock's price, but do they really matter?

Before we discuss the reliability of brokerage recommendations and how you can use them to your advantage, let's see what these Wall Street heavyweights think Amazon (AMZN).

Amazon currently has an average broker recommendation (ABR) of 1.10 on a scale of 1 to 5 (strong buy to strong sell), calculated based on actual recommendations (buy, hold, sell, etc.) from 50 brokerage firms. An ABR of 1.10 is roughly between Strong Buy and Buy.

Of the 50 recommendations that derive the current ABR, 46 are Strong Buy and three are Buy. “Strong Buy” and “Buy” account for 92% and 6% of all recommendations, respectively.

Price target and stock forecast for Amazon can be found here>>>

The ABR suggests buying Amazon, but making an investment decision based on this information alone may not be a good idea. According to several studies, broker recommendations have little to no success in helping investors select stocks with the greatest potential for price appreciation.

Are you wondering why? Because of brokerage firms' vested interest in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms give five Strong Buy recommendations for every Strong Sell recommendation.

In other words, their interests do not always align with those of private investors and rarely provide any indication of where the price of a stock might actually move. Therefore, the best use of this information might be to validate your own research or an indicator that has proven to be highly successful in predicting a stock's price movement.

With an impressive, outside-audited track record of success, our proprietary Zacks Rank stock ratings tool, which divides stocks into five groups from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of a stock's near-term price performance. So, validating the Zacks Rank with ABR could go a long way in making a profitable investment decision.

Although both the Zacks Rank and ABR are displayed in a range of 1 to 5, they are different measures overall.

The ABR is calculated exclusively based on broker recommendations and is typically displayed in decimal numbers (example: 1.28). In contrast, the Zacks Rank is a quantitative model that allows investors to harness the power of earnings estimate revisions. The display is in whole numbers – 1 to 5.

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