Meanings of Stock Recommendations: Outperform, Market Perform, Overweight, Underweight
September 11, 2012
Gone are the days when analysts simply use Buy, Sell or Hold when making stock recommendations. Of course, a few brokers still continue to use those terms but more and more analysts these days are resorting to euphemisms — or what we call “fudged terminologies” — when making recommendations in their equity research reports.
For example, we know what it means by a “Buy” but what exactly is a “Strong Buy”? What do we do if a stock is rated “Underperform” or “Overweight”? What does it mean by “Market Perform”, “Peer Perform”, or “Sector Perform”?
Fortunately, we have this guide below that summarizes these seemingly confusing terms related to analyst recommendations.
PinoyMoneyTalk.com’s Quick Guide to Analyst Recommendations
- Buy / Sell / Hold
Buy. The stock is expected to materially appreciate in price in the short-term. Buy and/or accumulate the stock at current levels.
Sell. The stock is expected to materially decline in value, causing a potential material negative return. Dispose or unload the stock at current levels.
Hold. The stock is not anticipated to generate a materially positive or negative return. Continue holding the stock until the next notice.
- Overweight / Underweight / Equal Weight
Overweight. The stock is expected to perform better than the average performance of the company’s industry. In a sense, this is similar to the rating “Buy.” The term “overweight” may also be used to refer to a portfolio. If a portfolio is “overweight” on a certain stock or industry, it means that the portfolio holds proportionately more weight of stock or industry compared to a benchmark portfolio. For example, if the Philippine Stock Exchange index (PSEi) contains 5% mining stocks and a fund’s portfolio owns 10% mining stocks, the fund is said to be “overweight” on mining.
Underweight. A stock rated “underweight” means that its performance is expected to be worse than the industry. If it refers to a portfolio, underweight means to unload the stock or industry in order to hold less than the proportional weight in a benchmark index. Similar in concept to a “Sell” rating.
Equal Weight. The total return of a stock is expected to be the same as the average return of the industry. If referring to a portfolio, the fund is said to be “equal weight” if it has almost or exactly the same proportional weight of stock or industry as in the benchmark index.
- Outperform / Underperform / Market (or Sector or Peer) Perform
Outperform. The stock’s total return is projected to exceed the average return of the industry (or its sector or its peers). This means the stock will perform better than the competition and is likely rated a “Buy”.
Underperform. The stock is anticipated to fare worse than the industry (or sector or peer) average and is most likely a candidate for unloading or disposal.
Market Perform (also called Sector or Peer Perform). The stock is expected to perform in line with the average return of the market or sector or its peers. Similar to a “Hold” or a “Neutral” rating.
Meanings of Brokers’ Stock Recommendations
When issuing stock recommendations, brokers and analysts may use the same terminologies but may differ in the meaning of the recommendations. For example, a “Buy” rating — as opposed to “Strong Buy” — may mean that the stock is projected to increase in value but in a longer-term duration, while “Strong Buy” may mean that the stock will appreciate in value in the next 12 months.
For some brokers, an “outperform” recommendation may carry a 15% upside potential while a similar recommendation by a different broker might refer only to a 10% price appreciation.
We cite below several brokers and the meanings of their respective analyst recommendations.
- CitisecOnline (COL)
Buy. Over the next six to twelvemonths, the share price is expected to increase by 15% or more.
Hold. Over the next six to twelvemonths, the share price is expected to move within a range of +/- 15%.
Sell. Over the next six to twelvemonths, the share price is expected to decline by more than 15%.
- Credit Suisse
Outperform. The stock’s total return is expected to exceed the industry average by at least 10-15% over the next 12 months.
Neutral. The stock’s total return is expected to be in line with the industry average (range of +/-10%) over the next 12 months.
Underperform. The stock’s total return is expected to underperform the industry average by 10-15% or more over the next 12 months.
- Deutsche Bank
Strong Buy. Deutsche Bank’s best picks, backed with high degree of confidence. Expect significant outperformance of the stock against the market. The time to act to buy the stock is now.
Buy. The stock is expected to outperform the market by 10% or more over the next 12 months.
Market Perform. The stock will broadly perform in line with the market over a 12-month period and the share price is likely to trade within a range of +/-10%.
Underperform. The stock is expected to underperform the average market performance by 10% or more over the next 12 months.
- Goldman Sachs
Recommended List. Over the next 6-18 months, the stock is expected to provide price gains of at least 10 percentage points greater than the market.
Trading Buy. Over the next 6-9 months, the stock is expected to provide price gains of at least 20 percentage points.
Market Outperformer. Over the next 6-18 months, the stock is expected to provide price gains of at least 5 to 10 percentage points greater than the market.
Market Performer. Over the next 6-18 months, the stock is expected to provide price gains similar to the market.
Market Underperformer. Over the next 6-18 months, the stock is expected to provide price gains of at least 5 percentage points less than the market.
- JP Morgan
Overweight. The stock is anticipated to outperform the average total return of stocks in analyst’s coverage universe over the next 6-12 months.
Underweight. The stock is anticipated to underperform the average total return of stocks in analyst’s coverage universe over the next 6-12 months.
Neutral. The stock is anticipated to perform in line with the average total return of stocks in analyst’s coverage universe over the next 6-12 months.
- Merill Lynch
Buy. Expected total return of 10% or more for low and medium volatility risk securities within 12-month period from date of initial rating; 20% or more for high volatility risk securities
Sell. Negative return.
Neutral. 0-10% expected total return for low and medium volatility risk securities within 12-month period from initial date of rating; 0-20% for high volatility risk securities.
Strong Buy. Greater than 20% excess return potential; high degree of confidence.
Buy. Positive excess return potential.
Hold. Low excess return potential; low degree of confidence.
Reduce. Negative excess return potential.
Sell. Greater than 20% negative excess return potential; high degree of confidence.
- Wells Fargo Securities
Buy. Stock is expected to outperform the general market over next 12-18 months. Immediate purchase is recommended.
Sell. Stock has reached stated price objective and appreciation has been achieved or certain company fundamentals have changed warranting investors sell the stock to avoid price decline.
Hold. Stock has moved out of preferred buying range, but there is further upside to share price or stated objectives at time of purchase have changed and share appreciation may take another 6-12 months. Holding the stock is recommended.
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