Did JPMorgan Analyst Stephen Tosa Write The Most Confusing Paragraph Of All Time?


This morning, Jeff Matthews said that the paragraph below from the latest JPM research report on 3M was like something from “The Onion,” and asked, “Say what?” and “Anyone care to venture what that means?” 

“We are upgrading 3M to Neutral as capitulation on the growth story and 2011 estimates should limit relative downside and make 3M once again somewhat of a defensive stock. While the negative dynamic of positive sentiment has turned modestly more favourable, stubbornly bullish consensus estimates for ’12, along with risks at Healthcare, keep us from moving to Overweight.”

At first glance, he’s right, and when you break it down fragment by sentence fragment, he’s still right. (Commenter Namazu is wrong; it’s not an anagram. It’s just bad writing.) 

But we see what C. Stephen Tosa, CFA, and co-authors Drew Pierson, Paul Mammola, CFA, and Jigar P Vora were getting at, and we’re pretty sure that anyone reading the report who skipped or read past the first paragraph and has too much time on their hands could too. We fit all those categories. So here goes a translation of the most confusing parts.

The subtitle of their report is “Gonna Walk Before They Make Me Run,” so keep that in mind.

It’s clear that the analysts believe that not much has changed at 3M, but that it’s good to buy on the bad news sell on the good news. To quote them, “The investor meeting showed little difference between growth at 3M and the rest of the sector, reinforcing our view that performance here is as much about end markets as it is about 3M… 3M is now the best “pension play” in the group, and with rates rising, this is more of a tailwind in ’12… We generally believe it can pay to be negative on 3M when sentiment is positive on Optical, and vice-versa, as its fundamental bark is typically bigger than its bite.”

So –

“Capitulation on the growth story” –> there is a growth story and 3M is falling in line with it

“Defensive stock” –> a hedge against market sentiment?

“Negative dynamic of positive sentiment has turned modestly more favourable” –> sentiment is negative on Optical, so we’re more positive

That said, we’ve read about 15 of these ever, so, don’t go doing anything crazy with the new information.

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