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Ratings Delineated

Weíve all seen the common analyst ratings but where do some of the less commonly used ratings issued by some analysts fit into the whole scheme of things.    We are all familiar with the Buy, Hold and Sell ratings industry analysts issue every day, and we know where Strong Buys fits in, but what about Accumulate or Market Underperform?   Letís look at the ratings from the most positive to the most negative.  Obviously the most positive rating is a Strong Buy, thereís no mystery her.  Next, as you would expect would be the Buy rating.  This is where some of the confusion begins.  The next rating isnít a Hold rating.  Many analysts have a handful of ratings grouped around the middle of the ratings scale, each with itís own fine degree of difference with those near it.  Just below Buy, would be the Long-Term Attractive rating.  This is a Buy rating with a little more information attached.  This is a stock that should do well over the long-term, but might not perform as well as other stocks near-term.  Next we have the Market Outperform rating.  Itís not as strong a rating as the buys but a positive rating just the same.  A stock with this rating is expected to do better than a broad market index like the S&P 500.  Moving down the ratings scale we find Accumulate.  These are stocks you donít need to rush out and buy because theyíre about to skyrocket.  Stocks with the Accumulate rating are stocks an investor should buy on market pullbacks and pose a long-term attractive holding.  The Hold rating is in the middle of the scale and can also be represented by a Neutral rating.  Keep in mind that at many brokerage firms the analysts are expected to remain positive and rarely issue a Sell rating, so a Hold rating may be as close as some analysts will ever get to issuing a Sell rating on a stock.  One neutral rating is the Market Perform.  Although neutral, the Market Perform rating is likely to have more substance than the middle-of-the-road Hold other firms use, since the firms using the Outperform, Perform, Under Perform are more likely to issue an Under Perform than other firms are likely to issue a Sell since it has less stigma associated with it.  Below the Hold rating would be a Market Underperform.  A stock with this rating will do more poorly than a broad market index such as the S&P 500.  The Reduce rating is just shy of a Sell rating, and is similar to the accumulate rating in reverse.  Where an Accumulate would encourage buying shares on dips in share price, the Reduce rating encourages selling the stock on market spikes.   Below the Reduce rating are the seldom seen and self-explanatory Sell and never-seen Strong Sell rating.  Tossed into the mix are a few other terms.  Long-Term Buy is as youíd expect nothing you need to rush into but will do well over the long-term.  A Short-term Buy you DO need to rush and buy.  The analyst issuing the rating has already put out the recommendation to his sales people and they have given it to all their clients so you need to either rush into the stock or run the other way.  Do your homework.  The Spec or Speculative Buy is a fair warning.  These stocks can be the next stock going from $5 to $500 or $5 to 5 cents, but they are an opportunity to look at and NOT bet the farm on.

   
 
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