If you’ve been reading research reports from stock brokerages for a while, you know that hold and buy ratings are given at a far greater rate than sell ratings. Brokerages get a lot of pressure from companies to give them positive stock ratings. As a result, “hold” ratings often really mean “sell” and “buy” ratings really mean “hold.”
We did an analysis of our database of more than 100,000 stock ratings dating back to mid-2010 to find out whether or not the perception that stock ratings are inflated is really true.
Here’s what we found:
- 8.13% of all ratings given were a “sell” rating or equivalent.
- 45.15% of all ratings given were a “hold” rating or equivalent.
- 25.44% of all ratings given were a “buy” rating or equivalent.
- 21.09% of all ratings given were a “strong buy” rating or equivalent.
- 0.15% of all ratings given were a “top pick”, “conviction buy” or equivalent.
The fact that only 8% of ratings given during the last two years were a “sell” and the fact that 46.5% of ratings were a “buy” rating or higher confirms the perception that ratings are inflated. For this reason, it’s important not just to read the one-word summary rating given by analysts at face value. Look at their specific ratings system, evaluate their rationale and consider what upside they suggest is possible based on the stock’s current price and the 12 month price target they set.
Verify the credibility of the brokerage giving out the rating and the price target. Out of the 39 brokerages that we have sufficient data to track for, the most accurate brokerage, Williams Capital, had 12 month price targets that varied an average of only 6.2% from their actuals. The bottom 10 ranked brokerages had 12-month price targets that were off by more than 100% of their actuals.
Of course, we believe the best way to get the data mentioned above is by subscribing to our new stock research tool, RatingsDB. RatingsDB provides subscribers with detailed information on more than 100,000 stock ratings from 162 different brokerages. RatingsDB also provides detailed rankings for brokerages based on the accuracy of their 12 month price targets.
RatingsDB is normally available for $12.99 per month or $129.00 per year. This week, you can get a 30-day risk-free trial subscription to RatingsDB for just $1.00. To take advantage of your $1.00 risk-free trial, simply register for RatingsDB using this link. You will only be charged $1.00 for the first month. If you aren’t interested in continuing with your subscription after your 30 day trial period, simply cancel your subscription and you won’t be charged again. If you choose to continue with RatingsDB after your $1.00 risk-free trial, you’ll receive a 25% life-time discount on your subscription.
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Have a great day!
Matthew Paulson
Analyst Ratings Network
P.S. Don’t miss out on our risk-free trial offer. Register for RatingsDB by October 25th and you'll get $30.00 off your annual subscription and a free copy of our guide, Understanding Analyst Ratings Systems.
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