Does “hold” really mean “sell”? If so, does that mean “buy” means “hold”?
These are the riddles many retail investors are having to solve as more and more brokerages offer analyst recommendations among the growing arsenal of research tools now available to the average investor.
Most offer tutorials on how to access analyst recommendations but few tell you how to read between the lines.
Generally, a “buy” means a stock is trading below its real value, a “sell” means it is trading above and a “hold” means it is priced just right. Most analysts will provide a price target indicating where the stock should be trading now and in the future.
However, you rarely see a “sell” rating even when a stock is going down in flames. This has aroused skepticism over the relationship between analyst agencies and the banks that do business with the companies.
More revealing is what is in the content of the analyst note. Qualified analysts have the know-how when it comes to interpreting financial statements and finding red flags. They can spot potential risks to a company in the balance sheet, as well as the broader world.
The reason for the rating can say much more than the rating itself.
Dale Jackson is BNN's Personal Investor. Follow him on Twitter @DaleJacksonPI