What do analyst ratings such as buy, sell, hold, and everything in between mean? The TipRanks Smart Score tool may provide additional insight and help you identify stocks that align with your investment goals and risk tolerance levels.
By Karl Montevirgen December 9, 2020 5 min read
5 min read
Photo by Getty Images
Key Takeaways
Understand what buy, sell, and hold analyst ratings mean
Know how to read analyst ratings and translate them into something meaningful
Tools that can help investors analyze the big picture in depth and breadth may be more useful than standard stock ratings
When analysts rate a stock as a “buy” or “sell,” that’s as clear as night and day. But when they add other terms to the mix—for example, strong or moderate buy/sell, overweight, underweight, outperform—confusion often sets in. If you’re among the confused, don’t worry. We’ll translate analyst jargon here and show you a tool that analyzes more market information while providing a clearer, simpler, and more comprehensive rating. First, let’s tackle the “lost in translation” issue of analyst speak. Imagine this conversation: Analyst: I say that stock XYZ is a buy. Welcome to the world of security analyst jargon, where crystal-clear ideas often come in the form of foggy language. Try the translations below. 1. BUYis the most bullish rating—it’s the same asstrong buy. 2. OUTPERFORMis the second most bullish rating. It’s also interchangeable with moderate buy, accumulate, overweight, and add. 3. HOLDis neither bullish nor bearish and may be subject to tip either direction in time. It’s interchangeable with the termneutral. Its meaning is relatively clear: If you own the stock, then hold itfor now; if you don’t own it, then you might want to holdofffor now. 4. UNDERPERFORMis a bearish rating. It means you might want to consider lightening your position or getting rid of some shares. It’s synonymous with weak hold, moderate sell, underweight, and reduce. 5. SELLis the most bearish rating on the list. It’s the same asstrong sell. A stock with asellrating might also be considered a potential “short sell” candidate. Analyst ratings may be a useful tool when analyzing a stock. But what if you were able to rank the analysts before looking at their ratings? Better yet, what if you were able to take a stock’s technical and fundamental features, news sentiment, blogger sentiment, hedge fund activity, corporate buying/selling, and combine it all into a simple rating from 1 to 10 … sort of like what you see in the TipRanks Smart Score tool (see figure 1)?
Investor: Too bad … I was hoping you’d think it was a strong buy.
Analyst: That’s what I meant.
Investor: Then why didn’t you say so? I was hoping you’d think XYZ might totally outperform.
Analyst: If I gave XYZ an outperform rating, then I wouldn’t have called it a buy.
Investor: What?Analyst Ratings from Bullish to Bearish
Using TipRanks to Cut Through the “Fog of Score”
FIGURE 1: TIPRANKS SMART SCORE. The third-party tool available to clients using the tdameritrade.com trading platform ranks stocks from 1 to 10, with 1 representing the lowest score and 10 being the strongest. Source: tdameritrade.com. For illustrative purposes only.
What is Smart Score? Sapna Sehgal, manager, digital platforms, TDAmeritrade, described it as “a giant holistic sentiment indicator that gets data from a number of publicly available sources—analysts, corporate transaction records, hedge funds, news articles, bloggers, technicals, and fundamentals—and synthesizes it all for investors and traders.” Smart Score tracks eight factors. Each factor has individual rankings (see figure 2), which makes it easier for you to zoom in on the factors that are most important to you.
FIGURE 2: THE EIGHT FACTORS BEHIND SMART SCORE. Select Detailed analysis to find out more about each factor. Source: tdameritrade.com. For illustrative purposes only. Past performance does not guarantee future results.
Let’s take a quick look at each factor:
How to View Smart Score
Log in to your tdameritrade.com account and:
- Select Research & Ideas > Stock Profile > enter stock symbol > scroll down to view Smart Score.
- Select View more details to see a summary of the eight factors that go into creating the Smart Score.
There are essentially three colors in the analyst rating spectrum: buy, hold, and sell. In between those three are 10 to 12 more varying shades ofbuy-ness,hold-ness, andsell-ness. Yet, analyst ratings—once a critical tool that stood alone—are now just one pillar among many you can use to analyze stocks. A tool like TipRanks Smart Score can be useful as long as you know how to use it, when to use it, and what to look for according to your investment goals and risk tolerance. TDAmeritrade and TipRanks are separate unaffiliated firms that are not responsible for one another’s services, policies, or opinions.The Bottom Line
By Karl Montevirgen
Key Takeaways
Understand what buy, sell, and hold analyst ratings mean
Know how to read analyst ratings and translate them into something meaningful
Tools that can help investors analyze the big picture in depth and breadth may be more useful than standard stock ratings
