Considering Analyst Ratings

Oct 22, 2012 by Adam C. Powell, Ph.D.

Given the extent to which market sentiment can drive the pricing of a stock, it is important to periodically consider the nature of the market’s sentiment. Professional analysts follow stocks and report their opinions as to whether their long-term prospects are positive or negative. Online brokers, such as Scottrade, provide detailed access to analyst reports. Accessing these reports often requires a subscription. While brokers in some cases cover the subscription costs, free online finance services typically do not.

By looking at summaries of analyst reports, it is possible to determine general trends. Scottrade provides a summary of ratings from S&P Capital IQ, Reuters, and Market Edge so that its members can compare multiple opinions. In this case, AAPL and C had rather positive analyst opinions, while CUBE had a neutral opinion. As different analysts update their opinions at different times, it is important to consider the recentness of the opinions.

It is also important to consider analyst trends when deciding whether to buy or sell a stock. In the case of Apple, S&P Capital IQ downgraded the stock on 11/10/11, while Second Opinion upgraded the stock on 7/9/12. Given the greater recentness of the Second Opinion decision, it is likely to be more related to Apple’s current performance than the action of S&P Capital IQ. Nonetheless, if S&P’s opinion were to change, it could upgrade the stock instead of maintaining the rating.