Ratings sometimes make the news. When an analyst
changes a stock's rating for the better, it's called upgrading
the stock, and lowering a rating is called downgrading. When a
respected analyst downgrades or upgrades a stock's rating, many
investors take that advice seriously — both because they
respect the analyst's opinion and because they know that the market
will react to the rating change.
On the other hand, if you're an investor who's
looking for
value
you might take the opportunity to buy a downgraded stock after
prices dip, if you believe that the stock could turn around. This
may also be true if you have a
contrarian
style of investing — buying when others sell, and vice versa.
And long-term investors may not worry so much about changes to
ratings, unless the situation is particularly dire.
What's the latest?
Because the analyst reports you review may be
a few months old, you may need to examine them in light of the
latest news and price movements to determine if the analysis still
holds firm. For example, if an analyst has downgraded a stock
because the
price-to-earnings ratio (P/E)
is too high — in other words, the
stock seems overpriced — selling in the stock may have brought
the
P/E down to a more reasonable level.
In fact, you might entirely disagree with the
analyst's recommendation. You may decide a stock is right for
your portfolio now, even if an analyst recommends that you wait
for a better price. That's why some investors prefer to look beyond
a report's rating and use more of the supporting research to make
their decisions.
Sam Stovall,
Chief Investment Strategist at Standard & Poor’s
Sam Stovall, 
