Every quarter, and sometimes more frequently, we read about how Wall Street Analysts rate stocks. It’s incredible how influential Wall Street analyst notes can be. An upgrade or downgrade can easily have an impact on the stock’s price. But have you ever checked how accurate these analysts actually are? Anyone can post an opinion online these days, and while these analysts do work for major investment firms, sometimes investors take what these analysts say as gospel.
Table of Contents
- Why We Care About Top Wall Street Analysts
- The Top-Ranked Wall Street Analysts
Why We Care About Top Wall Street Analysts
Well I’m here to shed some light on some of the best Wall Street analysts. It’s easy to feel bullish when a stock gets an upgrade or bearish when it is downgraded.
But we also have to remember that a lot of these analyses are based on the same information that we all have.
Some analysts way certain catalysts differently, and some have a higher or lower bar for what defines a good quarter.
At the end of the day, we care about what Wall Street analysts say because investors have a connection to their stocks. We get optimistic when someone is positive and defensive when someone is negative.
It’s nothing to be embarrassed about, it’s just human nature. But how closely should you take these analyst estimates to heart? Let’s try and break down what an analyst upgrade or downgrade really means.
When A Wall Street Analyst is Bullish
These are the headlines we all love to see, right? When the stocks we own get a bullish rating from an analyst, we start thinking about our future potential gains. But more often than not the stock doesn’t quite follow an upwards trajectory.
These upgrades or positive ratings can improve sentiment for the stock in the short-term. But over the long-term, Wall Street analyst ratings have less of an impact. Here’s what it looks like when an analyst is bullish.
An overweight rating is more positive than neutral but just short of a buy rating. It usually means the analyst believes the stock will slightly outperform the market.
An Overweight rating is the same as a Moderate Buy, Accumulate, and Outperform ratings. While the analyst is bullish on the stock, there are likely some issues that could hamper its performance.
It really doesn’t get much clearer than this. A Buy rating means that the analyst iis extremely bullish on the stock right now.
They also expect the stock to greatly outperform the market for the rest of the year.
A Buy rating or Strong Buy ratings are as bullish as analysts get. Even if there are some issues with the industry or market, the analyst feels comfortable advising investors to buy the stock immediately.
When A Wall Street Analyst is Bearish
Bearish headlines for stocks aren’t as enjoyable for investors, but they can also often act as a red flag. An analyst may know or see something that normal investors overlook in terms of forward-looking outlook or comparable industry performance.
These can certainly have a negative impact on sentiment and we know how bad news can have a snowball effect on the stock’s price. Downward pressure just seems to have more weight to it than upward pressure. Here’s what it looks like when an analyst is bearish.
SImilar to the Overweight rating, Underweight means the analyst expects the stock to slightly underperform the market. Underweight is an important rating, since it means the analyst sees enough in the stock to warrant holding it. An Underweight rating has the same meaning as Moderate Sell, Weak Hold, and Underperform.
No confusion about this one, a Sell rating means the analyst is telling you to cut bait with the stock. This is one of the worst ratings a stock can get aside from Strong Sell. Analysts don’t seem to use the Sell rating as much, but when they do, there are likely some upcoming catalysts that will put pressure on the stock’s price. It’s never a good sign when your stock gets a Sell rating from an analyst.
Even Analysts Cannot Predict Market Corrections
This year, you have probably seen a lot of analysts lower their price targets on stocks. Price target downgrades are generally seen as bearish by investors, but it’s not always the case.
The first three months of 2022 have seen the stock market pullback from previous all-time highs.
The S&P 500 hit correction territory and the NASDAQ briefly fell into a bear market. So what happens when the markets crash like this? It means price targets need to be updated.
A great example of this happened with the Chinese EV stock Nio (NYSE:NIO). The stock had some lofty price targets for 2022, but these were made by analysts before a bulk of the correction. Two major analysts downgraded the price targets for Nio, and the stock fell on the news. But divind a little deeper, investors can see that both analysts have positive ratings for the stock and are bullish on the company long-term.
Sometimes price target downgrades, or upgrades, are simply a necessary adjustment to make. In the case of Nio, the analyst sentiment should be more of an indication to follow than the actual price targets. The price targets are definitely flashier, but the meat of the analysis lies in the rating the stock gets.
The Top-Ranked Wall Street Analysts
Just to preface this list, the rankings are from the TipRanks site. TipRanks measures analyst accuracy and how well the targets do compared to the actual stock. Without further ado, here are the top-ranked Wall Street analysts.
Glenn Greene – Oppenheimer
Greene focuses on the Technology sector and has an 85% success rate for his picks. His average return of 22.5% isn’t as high as some of his peers, but his success rate more than makes up for it. Greene has some ratings on a few well-known tech stocks including PayPal (NASDAQ: PYPL), Block (NYSE: SQ), Visa (NYSE: V), and MasterCard (NYSE: MA). Currently, Greene has a Buy rating for 82% of the stocks he covers and 0% of them as a sell.
Quinn Bolton – Needham
While Bolton has a 74% success rate compared to 85% for top-ranked Greene, he has a stellar 48.7% average return. The Needham analyst also focuses on the tech sector with 86% of the stocks he follows getting a buy rating. Some stocks on Bolton’s list that you’ll recognize include a slew of semiconductor names like Intel (NASDAQ: INTC), Marvell Technologies (NASDAQ: MRVL), and Applied Materials (NASDAQ: AMAT).
Jason Seidl – Cowen & Co.
Seidl has a solid 80% success rate and an average return of 29.6% for his stock picks. This analyst focuses on the services industry and is slightly less bullish than Greene and Bolton. Seidl has a buy rating for 68% of the stocks he follows including Kansas City Southern (NYSE: KSU), XPO Logistics (NYSE: XPO), and Saia (NASDAQ: SAIA).
Dan Payne – National Bank
Payne is an analyst for National Bank, a Canadian banking institution based out of Montreal. He focuses on the basic materials sector and has a stellar 90% success rate. Payne’s average return is a staggering 93.8%, and he has a buy rating for 53% of the stocks he follows. There is a good mix of both US and Canadian stocks on Payne’s watchlist. Some of these include Imperial Oil (TSX: IMO), Cenovus Energy (NYSE: CVE), and Suncor Energy (TSX: SU).
Gerard Cassidy – RBC Capital
Cassidy is a financial analyst that covers the major banks and institutions in the US. His 78% success rate is solid and his average return of 28% is nothing to sneeze at. Cassidy tracks all of the major US banks including Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM), and Bank of America (NYSE: BAC).
Can We Trust Top Wall Street Analysts?
Retail investors are a skeptical group for sure, especially when it comes to trusting institutions. A common rhetoric amongst investors is that analysts make ratings based on their company’s holdings. The thinking is that if a higher price target is given, it will drive the stock price higher. Although I don’t buy this theory, I do think analyst ratings should be taken with a grain of salt. Just always remember there were and still are analysts bearish on Tesla (NASDAQ: TSLA).
There were always analysts bearish on big tech stocks as well, so you know these guys and girls never bat 1,000%. But, give credit where it’s due. It is a difficult industry to be in and people tend to remember misses more than they do hits. If you want my opinion, focus more on the analyst ratings than the price targets. These targets are generally arbitrary or the result of plugging numbers into a formula. But the sentiment is a better indication of how the analyst really thinks the company and stock will perform.