2. Analyst Ratings
Market analysts don’t just provide predictions on a company’s upcoming earnings, they also provide constant ratings on many major stocks, within the following categories; Sell, Underperform, Hold, Outperform and Buy. ‘Sell’ and ‘Buy’ are obvious – a clear indication in either direction. ‘Hold’ implies that the analyst believes that the stock and company in question will show similar rates of movement to the market in general or to other stocks in the same market sector. ‘Underperform’ suggests that the analyst thinks that the stock will do slightly worse than ‘Hold’, whilst ‘Outperform’ suggests that the analyst believes that it will do slightly better.
However, analysts’ ratings should not be accepted in blind faith by traders. Firstly, there is no guarantee that the analysts will be correct. Secondly, analyst unanimity is rare, which means one analyst’s ‘outperform’ might well be another’s ‘Underperform’, for example. Analyst ratings can be useful, but usually it’s best to use these in conjunction with one’s own research.