Figuring out Analyst Reports
When doing investment research, analyst reports can be a good place to start. These reports usually summarize an analyst’s position on a stock; their recommendation, growth drivers, industry trends and price targets. For the seasoned investor these reports are easy to sipher through but for investors starting out they can be a nightmare to get through. When I started investing - I constantly struggled with these reports and found it hard to find some good resources (besides professional courses) to help me with my investment research. In this article, I am just going to touch on a few common terms. Its important to note that even though these reports provide a good amount of information - more research is necessary when you are investing.
One term that is for sure to appear on all analyst reports is the analyst’s price target or (PT). This is the analyst’s prediction of where they believe the stock to be in x number of months. The price target is usually estimated with a series of calculations involving cash flows, dividends and price to earnings ratios.
It is also important to note that analysts reports also contain many other terms sometimes related to the sector the stock is in (manufacturing, technology, health), the term is in relation to a benchmark portfolio (an index for example like the Dow Jones) or the stock itself.
Outperform/Underperform: The “perform” related terms are usually in relation to other stocks in that company's index and or the overall index. An outperform signal indicates that the analyst believes that the stock will provide superior returns that another holding in the index. Similarly, an underperform signal indicates that the holding is anticipated to generate inferior returns compared to the index.
Oversold/Overbought: When people refer to panic selling they are referring to oversold conditions. Oversold conditions are times when excessive selling pressure (and high volume) drives the stock down below its true intrinsic value. Sometimes this represents a buying opportunity from a value perspective. Overbought is similar but represents excessive craze around the stock driving the value of a stock higher for no reason. Overbought conditions create overvalued securities until the buying pressure eases or the market corrects.
Overweight/Underweight: These are two specific terms that are specifically related - which related to the concentration of a security in one’s portfolio. The weight is the percentage a security represents in a certain benchmark. Overweight means that the analyst is suggesting to increase the weight of that holding compared to others.
A final note, while these terms might be useful for preliminary research they should not be your only outlet for research. Other aspects such as catalysts, growth drivers, financial statements and other tools should be used.
Disclaimer: All of the above is my own personal opinion. It should not be used as investment advice. Please do your research when making any investment decision and consult with a licensed representative.
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