Wall Street rebounded Friday in a choppy session after the S&P 500 hit a key technical level. Fred Katayama reports. Newslook
Analyst upgrades and downgrades can certainly move a stock. Here’s what you need to know.
Q: One of my stocks fell 5% the other day, and when I tried to find out why, all I learned is that an analyst had downgraded the stock. What does this mean, and should I be worried?
Analyst opinions can certainly move stocks — sometimes by a lot. For example, an analyst recently downgraded Square, and the stock plunged by 16% as a result.
However, my advice is to take an analyst downgrade with a grain of salt. It’s important to keep in mind that a downgrade is simply a change in a particular analyst’s opinion about a stock. For example, the Square downgrade was because an analyst felt that the company’s experimentation with bitcoin won’t have the positive effect the stock market seems to be expecting. In addition, the financial institution that employs the analyst generally releases the report to its own clients, and many may choose to sell, creating downward pressure on the stock.
In fact, analyst downgrades can create buying opportunities in solid companies on which you’ve done your own research and feel that there is strong long-term potential.
However, a flurry of downgrades on the same stock in a short period of time, or a downgrade that fundamentally challenges your investment thesis can be a sign of trouble. For example, if several analysts downgrade a stock and all of them say that there’s a strong possibility of a dividend cut, this could be a good reason to take a closer look at the stock — especially if the dividend is one of your main reasons for owning it.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool: Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*
Tom and David just revealed their ten top stock picks for investors to buy right now.
*Stock Advisor returns as of Nov. 6, 2017.
This post was originally published on *this site*