Question: On the evening news recently, they mentioned that whisper numbers are back. I vaguely remember the term, but what exactly are they?

Answer:

Dear Jed,

You’re right. Whisper numbers are making an appearance again. But first, let’s look at the so-called official number and then we’ll discuss whispers.

THE OFFICIAL NUMBER

Official numbers are estimates of a company’s quarterly earnings per share, made by Wall Street analysts.

Analysts, in fact, make their living by predicting how well (or poorly) they think a company will do each quarter. These estimates are based on several sources: (1) information given to analysts by the company itself (2) data about the industry which the analyst gathers and interprets and (3) the analyst’s professional interpretation of the overall economy.

The analyst’s firm publishes the estimates for the companies it follows. These numbers are then picked up by the media.

THE WHISPER NUMBER

The whisper number is an unofficial earnings per share estimate that bounces around Wall Street trading desks, on specific websites and in online chat rooms. They’re forecasts of what traders and investors think a company will earn.

THE COMEBACK

During the bull market, whisper numbers pretty much went away. However, during the second quarter of this year, a number of companies came in with earnings higher than the analysts’ official estimates. This trend has lead to a resurgence of whisper numbers among investors.

These investors feel analysts have been too conservative in their estimates — perhaps because of the stalled economy, international concerns, the situation in Iraq and other overriding matters.

MY CAUTIONARY POSITION

If you decide to browse about a whisper site, take time to read either the FAQ or the About Us section to find out how the information is gathered. You’ll find it’s generally quite vague. Most whisper sites tally up estimates of what individual investors (not professionals) think a company will in fact earn.

Two of the oldest such sites are WhisperNumber.com and GetWhispers.com. GetWhispers is currently not available as it’s in the process of setting up a paid subscription format.

Please don’t invest solely based on whisper numbers. Keep these points in mind in determining whether or not to listen to whispers:

(1) The whisper number by its very nature differs from analysts’ forecast.

(2) The whisper number generally comes into existence because a company’s earnings actually exceeded or are expected to exceed official Wall Street expectations.

(3) The reason why analysts may not be on target is because a company’s CFO tends to present a fairly conservative outlook about the company.

(4) Not all stocks have whisper numbers. If there is no significant upward or downward earnings surprises in the official number, it’s not likely that a whisper number will be posted for that particular stock.

(5) Earnings estimates by analysts may be conservative but they are also largely intended for long-term investments — by individuals, mutual funds, and pension funds. Day traders, however, are more likely to find whisper numbers relevant in that they move in and out stocks so quickly.

THE BOTTOM LINE

It’s always wise to gather as much data as you can about a company before buying or selling its stock. In the process of collecting and reading information, whether it’s the whisper number or the consensus number, you’re bound to learn more about the company than if you maintained a coach potato position.

However, do not, I repeat, do not rely solely on whispers. Take them with a grain of salt. And check independent analysts’ stock evaluations in Value Lines Investment Survey. available at most libraries and by subscription at www.valueline.com.