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Do "Sell" Ratings Really Exist?


The findings from a comprehensive analysis of 100,000 stock ratings.


Editor's note: If you enjoy seeing analyst ratings in the cross-hairs, see also Analyzing Analysts' Language and The Rise of the Ax-Wielding, Market Moving Analyst.

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 from 162 different brokerages 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.

Click here for more information about the Analyst Ratings Network's premium service, RatingsDB, which for the month of July is being offered at a significant discount.

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