What are Analyst Recommendations?

What are Analyst Recommendations?

Analyst recommendations are recommendations and advice given by financial analysts and investment researchers to their clients with regards to what assets to invest in and what assets not to invest in. Financial analysts usually conduct extensive research on a specific asset class and also on the overall state of the financial markets before issuing a recommendation.

Modern financial markets are incredibly diverse, with different asset classes behaving differently at different times. For example, fixed income markets behave very differently from equity markets. Furthermore, even within fixed income markets, the market for sovereign debt behaves very differently from the market for corporate debt. As a result, financial analysts usually specialize in only one or two asset classes.

Types of Analyst Recommendations

Analyst recommendations fall on a spectrum ranging from a “Strong Buy” to a “Strong Sell.” It is shown below:

Strong Sell

The analyst expects the price of the asset to fall in the future and strongly recommends investors to sell their holdings of the asset. In addition, the analyst recommends that investors take leveraged short positions in the asset.

Sell

The analyst expects the price of the asset to fall in the future and recommends investors to sell their holdings of the asset. A “Sell” is a weaker recommendation than a “Strong Sell” and does not usually imply a recommendation for a leveraged short position.

Hold

The analyst expects the price of the asset to remain unchanged in the future and recommends investors not to change their existing stance on this asset. A “Hold” recommendation is the analyst telling investors that there is no new information that can substantially affect the price of the asset.

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Buy

The analyst expects the price of the asset to rise in the future and recommends to investors to increase their holdings of this asset. A “Buy” is a weaker recommendation than a “Strong Buy.”

Strong Buy

The analyst expects the price of the asset to rise in the future and strongly recommends investors to increase their holdings of the asset. Investors are recommended to leverage up in order to increase their long position in the asset.