Typically, an analyst follows a number of companies, often in the same industry. The analyst's job is to know these companies inside and out, and to deliver objective, accurate recommendations about their stocks. Analysts must examine whether a company is financially sound, whether it has potential for increased future earnings, how it measures up to others in its industry, and whether its current price is worth paying.

Whose side are they on?

There are two kinds of analysts: buy-side and sell-side. As an individual investor, you use sell-side analysis, which comes from the side of the financial services industry that concentrates on selling stock. This includes investment banks that help a company create and distribute its stock, brokerage firms, and analysts who advise the public.

Buy-side analysts research investments for big institutional investors, such as mutual funds and pension funds. There are more buy-side analysts working on Wall Street than sell-side analysts, but the buy-side never makes its research public.

Sam Stovall,
Chief Investment Strategist at Standard & Poor’s

Getting to know them
Analysts are like journalists — some get most of their information from company-authored press releases, and others are thorough investigators who dig deep for more facts. When companies misrepresent the facts, analysts who rely heavily on official company reports can be misled. Furthermore, investigative analysts may have their work cut out for them, since many companies have been known to be uncooperative with analysts viewed as overly critical.

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