Analysts Stock Ratings: How Accurate Are they ?

Analysts Stock Ratings in today’s markets may well be called the Fake news version of the stock markets.

From lack of transparency to very low accuracy, we will guide how on what to make of Analysts Stock Ratings and provide step-by-step guidelines on how you as stock or option trader can highly benefit from them.

What Are Analyst Stock Ratings ?

Public Traded companies receive ratings by Analysts who follow their industries.

These stock ratings come as a result of a thorough evaluation of the traded company using known metrics such as sales, Earnings as well as potential catalysts and headwinds.

What do Stock Ratings Mean ?

The primarily goal of the stock ratings in to inform the general public mainly investors about the current and future prospect of a given company.

The understanding is that enough due diligence and research is performed by the institutions that generate these stocks ratings.

Analysts Stock Ratings  for JD.com
Example of Analysts Stock Ratings | All Positive Ratings from Mar 2019 to August 2020 with Increasing Price Targets

Should that be the case, potential investors can use these stocks ratings by analysts to either invest more or reduce their stakes based on the analysts recommendations.

What make them relevant ?

We have to keep in mind that different actors in the markets do not always pursue long term goals.

Hence, the stock ratings information is also used for short term speculation.

What do they mean ?

Upon a release of a stock ratings, there is usually some volatility involved in the immediate short term.

This means that short term traders will be impacted by this announcement.

Most of the times, the moves is not as big as for Earnings Release but till enough to impact Options traders.

Who are the people generating them

Can you Trust Stocks Analysts ?

Are Analysts Stock Ratings Ever Right ?

The format of Analysts stock ratings has gotten a bit complex lately.

Typically, it used to be a Sell or Buy with a Price Target.

Nowadays more shades have been introduced into the scale.

What is the Format of analysts stock Ratings ?

In between Buy and Sell, there are some intermediary ratings as depicted in the view below.

Example of analysts Stock ratings recomemndations Trends between November and August
Analysts Stock Ratings translated into Numbers Scale between 1 (Strong Buy) and 5 (Sell)

When the ratings move upward that is considered an Upgrade.

On the contrary, if the ratings move downwards, it is known as a Downgrade.

As shown above, the stock ratings recommendations can be converted into a single number ratings.

A consensus number is derived by combining the numbers from all analysts providing recommendations.

The scale is such that a value of 1 is a strong Buy and a value of 5 is a Sell ratings.

A value of 3 in the middle is assigned for a Hold.

Both upgrades and downgrades can come with a target price change even if that is not always the case.

If you have been trading for a while, you certainly can wonder how often do analysts release stock ratings.

The answer is simple.

There is no set schedule at all.

Typically, Target price rating as supposed to be valid for a year.

But often we have seen the same analysts come up with several ratings during the course of the same year.

Each price Target revision generates an opportunity for new investors to jump out or in of the rated stock.

Below an example where one of the from Susquehanna released several recommendations for the same stock.

Susquehanna Stock Ratings Recommendations twice within 6 months

Other firms like Raymond James and Barclays provided multiple stock ratings recommendations in the above view.

Specific industry can be going through a rough time thus justifying the numerous ratings.

However, you will come across what is becoming straight up manipulation as some traders like to call it.

I am referring to the ever-increasing out -of-the-bleue ratings with little price change.

You know the type: $5 change in price target for a stock above $100.

Stock Ratings of that kind can only further lead traders and observers question the accuracy of the ratings firms.

Who Are the Best Stock Analysts Today

Ratings firms and their analysts do not come the same.

Inside of each Analyst firm, specific individual are assigned to industry and companies within that industry.

Because of their history, some stock analysts have developed a bad reputation in the trading community.

Ask any AMD trader about Goldmans Sachs stock ratings of their favorite stock and he or she will have a few choice words for the sell-side.

Why you may ask ?

The reason is that some analysts have to walk a fine line between fairly rating company and supporting the cause of their firm.

Top analysts in Wall street by TipRanks.com
Top 10 Analysts in Wall Street by TipRanks.com

Goldman Sachs is the biggest if not one of the biggest banks that generate tons of revenues from trading.

How can the general public respect their ratings of a given stock knowing of the potential conflict of interest ?

We are not suggesting that this is common practice but one cannot help raising the question.

Of course, the trading side of the house is not supposed to know what they analyst side of the house is working on.

At least on paper. The reality may be blurry at best.

Ratings of Stocks Analysts

Hopefully for us, there are companies out there like Tipranks.com that keep tabs on Wall Street Analyst.

A list of analysts accuracy is offered to the general public so that you can follow your favorite stock analyst and be alerted whenever he or she issues a new stock ratings recommendations.

You will often see in trading forum some referred to as 5-star analyst or whatever their ratings at the time is.

Where to find the right analysts Stock Ratings Info ?

Most financial outlets and websites will have a summary of the most recent analysts stock ratings for your stock of interest.

I can thinkof Investing.com or Yahoo Finace App in their details section.

Top 10 Strong Buy Stocks going into 2021 and Beyond

My favorite place to perform a screening of Top Strong Buy Stocks in non other that Finviz.

Here is a short video to help you identify highly rated stocks to consider for investing in your portfolio.

How to Use Analysts Stocks Ratings For Day Trading or Swing Trading

If you are more of a short term trader involved in day trading or swing trading, you can take advantage of Analysts ratings.

Typically after an upgrade or a downgrade, a stock will gap up or down.

We have been able to exploit this volatility to setup a very efficient and powerful day trade strategy called Gang$ta trade.

Below are some of our winning recent winning trade from the Gang$ta Strategy.

CONCLUSION

We discussed the importance of Analysts Stock ratings in today’s stock market.

For long term and short term investors alike, we shared tools and platforms where to get releveant information about analysts stock ratings.

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