Page 213

company may not be meeting expectations and its stock will be headed lower.

Many times analysts issue both short- and long-term ratings for a stock. Also, it is common for many analysts to issue or change their recommendations on a stock after the earnings have been released. These after-the-fact ratings may further magnify the price movement for the stock after the earnings release. And sometimes these recommendations may become self-fulfilling prophecies. For example, if a popular analyst puts a buy rating on a stock, the stock may move up as a result of the recommendation, giving the impression that the analyst was correct where in fact it was the analyst himself that caused the reaction. When an analyst moves a stock’s rating up (e.g., from hold to buy) this is known as an upgrade. The reverse (e.g., hold to sell) is known as a downgrade. And at times analysts may just reiterate their previous ratings to show their continuing coverage of a stock. Don’t get too obsessed with the ratings. Analysts are humans just like us, and their ratings are based on (hopefully) educated guesses. You should use the ratings as a general guideline, rather than a green light to jump into a position. Other types of granular ratings that might be issued by analysts include (in the order of favorable to unfavorable): strong buy, trading buy, accumulate, market outperform, market perform, neutral, maintain, market underperform, reduce, and sell.

Other Reasons Why Stock Prices Move Up (Or Down)

Stock splits, IPOs, M&As, and good earnings are a few reasons why many stocks may go up in price. There are also other reasons why a certain stock price may increase, sometimes wildly and other times mildly. Good economic news or favorable interest rate conditions usually give stocks a broad lift. Other times there are reasons specifically targeted to a certain stock (or a group of stocks) that cause a price jump …