Scenario: Valuentum researches a firm and concludes that it fits their investment methodology, the Valuentum Buying Index, for inclusion into the Best Ideas portfolio. The Valuentum Team plans to present the idea at its next meeting for internal debate and discussion before sending out a transaction alert email to members. In the meantime, however, a Wall Street analyst cuts the investment rating on the stock from ‘Buy’ to ‘Hold’ and raises the price target. What is this Wall Street analyst doing, and how does this impact Valuentum’s thoughts? Which is the correct answer from below?

A.    The Wall Street analyst is playing a game. He/she lowered the investment rating to accommodate his/her value clients and raised the price target to appease his/her growth clients. The Wall Street analyst’s goal is to keep all his/her clients happy, so they keep trading on his/her firm’s trading desk for commissions.

B.    The Wall Street analyst has covered himself/herself. He/she has an explanation if the stock price increases and if it decreases.

C.    Nothing has changed in Valuentum’s view.

D.   Valuentum no longer likes the stock because it has become too difficult to understand what is going on.

E.    Answers A, B, and C.

The correct answer is E.

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