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Ratings Delineated
We’ve
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?
Let’s look at the ratings from the most positive to
the most negative.
Obviously the most positive rating is a Strong Buy,
there’s no mystery her.
Next, as you would expect would be the Buy rating.
This is where some of the confusion begins.
The next rating isn’t a Hold rating.
Many analysts have a handful of ratings grouped around
the middle of the ratings scale, each with it’s 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.
It’s 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 don’t need to rush out and buy
because they’re 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 you’d 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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