For some reason Intel (NASDAQ:INTC) seems to be boring to Wall Street. 40 investment banks follow the company and provide research on it. They seem to believe that it is fairly valued. According to, the average rating is a hold and the average target price is close to current levels.

If an enormous market leading company like INTC is only getting hold recommendations, I would be concerned if I was a shareholder. This could be a situation where a buy rating means hold, a hold rating means sell, and sell rating means run for the hills.

To understand why this might be the case you need to understand investment banking and what is known as ‘analyst affiliation bias’ This is when analysts overestimate the investment potential of companies that their firms do business with. Some say this problem isn’t as bad as it used to be and maybe they are right, but I can assure you that it is still widespread.

Investment banks or brokers are the firms you hear about that are placing buy, sell, or hold recommendations on companies. They research these companies and give their clients who manage money, like mutual funds and hedge funds, investment recommendations. If these clients get value from these recommendations or other research, they will place trades with the bank or broker dealer. The firms that provide the research that will benefit because they will be paid commissions to execute the trades.

But here is the issue. These banks and brokers make most of their money from their investment banking services, not by providing research to money managers. Investment banking clients include large corporations that use the bank for services such as daily financing, issuing bonds or shares, or help with acquisitions.

Because of this analysts are reluctant to say negative things about a corporation that is or could be a banking client of their firm. For example, say an analyst ‘Joe’ works at investment bank ABC. ABC makes millions of dollars annually by providing services to corporation XYZ. Now suppose that Joe notices something in XYZs filing statements that would make him place a sell recommendation on the stock.

However, this isn’t the boy scouts and Joe knows that if he publicly expresses his opinions, XYZ may stop doing business with ABC. ABC could lose millions of dollars and it will come up with a reason to fire Joe. In the real world, things like this happen all of the time. Joe doesn’t have ‘analyst affiliation bias’. He has ‘Joe doesn’t want to get fired’ bias!

Because of this there is an extreme, and many would say dishonest, reluctance for these investment banks to say negative things about a corporation. A study by market data provider Factset that came out a few years ago showed that only about 5% of companies actually have sell recommendations on them. It is reasonable to think that this shows extreme bias because in a neutral market there should be just as many sell ratings as there are buy ratings.

INTC annually pays out tens of millions of dollars in investment banking fees. When behemoths like INTC are only averaging hold recommendations I would be concerned if I was a shareholder. It may be a bad signal because these hold recommendations may be overly optimistic. This could be a situation of ‘if you don’t have anything good to say about a company, don’t say anything at all’. This could mean that buy ratings means hold, hold ratings mean sell, and sell ratings mean run for the hills.

If INTC heads lower look for some short-term support around the $43.50 level. There was support there in May. It was also support during last October and then again in December.