What are some tips for researching stock ratings?


Quick Answer

Tips for researching stock market ratings include understanding the terms used to rate stocks and carefully reading the analyst's rating scale, explains Investopedia. Investors shouldn't react solely based on an analyst's rating, but should do their own homework because some analysts have conflicts of interest, according to the U.S. Securities and Exchange Commission.

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Full Answer

Analysts use several terms to rate stocks, including buy, sell, hold and neutral, reports the U.S. Securities and Exchange Commission. However, various firms may interpret these terms differently. A buy in one firm may be a strong buy in another, while a sell in another firm may be a moderate sell or an "underperform" in another firm, according to Investopedia. When researching stock ratings, investors should read the reports from different firms to understand the definitions of the terms.

Analysts may have conflicts of interest, such as directly or indirectly owning stock or securities in some of the companies they rate, reports the U.S. Securities and Exchange Commission. Therefore, the SEC advises investors to conduct additional research, such as reading the prospectuses of various companies and their reports to the SEC. However, the Financial Industry Regulatory Authority requires analysts to disclose conflicts of interest in certain circumstances when rating securities and stocks.

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