What Is an Overweight Rating

What Is an Overweight Rating?

5 min read

What is an overweight rating meaning in the stock market? If a stock has this rating, it means that analysts believe the stock will outperform a given index, security, or stock. Furthermore, an overweight rating also means that the stock may reach a position higher than what a particular benchmark gives it. Most stocks are given an ‘overweight rating’ for a short-term trade not for a long-term trade.

stock that’s overweight could entail a few things. This rating means that the stock is above average as compared to the entire range of stocks available under a given index; say the S&P 500.

In fact, its performance will be positive and ‘higher in positive’ than what investors expect its position to be. So yes, it’s considered good. Very good, in fact.

Overweight ratings are done in contrast to underweight ratings. Overweight and underweight in the stock market are used as performance predictors.

They’re most likely an indication of how analysts think the stocks will do in the predictable future. If a stock has an overweight and underweight designation, it means that the stock is subjecting to a performance for and in the next 12 months.

Explaining the Overweight Rating

When a stock is overweight, it means that it automatically has a buy rating from analysts. In other words, the stock may have an increasing value. Or it might just not lose value, generally and despite market conditions.

To understand overweight ratings, suppose an investor is holding 15% of his investment in science stocks. If the investor’s portfolio is 5% overweight in science stocks, and it’s overweight compared to the market percentage, the recommendation or suggestion will be to buy more than 10% by value of science shares.

Ratings such as these help investors get a sense of the stocks they’re investing in. Investors would usually pick up stocks with an overweight rating because they have a buy rating.

Furthermore, it gives investors a good idea about which stocks to explore since this rating goes over a period of 12 months. As well as what and what not to put in your portfolio. Since stocks with overweight ratings are those that outperform the market, they’re a good buy.

Does Overweight Mean Buy or Sell?

The term overweight should be taken as an instruction. This means that investors should believe or weigh this stock more heavily than other stocks.

Furthermore, analysts might give a stock an overweight rating because of their positive earnings. For instance, if there’s a company which is beating a quarterly earning result or EPS.

Wait to make sure the stock will go up. Sometimes good earnings don’t mean the stock will fly right away.

Overweight may also mean an excessive amount of an asset in an investment portfolio and fund. It’s a common practice amongst portfolio managers to overweight holdings if they think these will either boost returns or perform well.

While all of the above is true, it’s also important to realize that portfolio managers may deliberately overweight a given holding. There are actively managed funds/portfolios that assume overweight positions in given securities because it may sometimes help in achieving excess returns.

This is mostly done when managers believe that their assets will outperform other investments in the given portfolio. For example, investors may raise a particular security weight from 15% to 25% to increase the portfolio’s returns.

As a result, overweight ratings will increase the portfolio results. It’ll also increase returns and hedges against other kinds of overweight positions. Finally, the overweight rating meaning is used to define a stock that offers better value for money as compared to other stocks. Other common types of ratings are underweight or equal weight.

Benefits of Buying Overweight Rating Stocks

There are many benefits of buying overweight stocks. Firstly, overweight stocks offer better value for money than underweight stocks do. Keeping them in your portfolio means that you can combine them with two or three other underweight stocks.

Then let the total amount of these stocks disperse evenly throughout your investor basket. Secondly, overweight stocks are more profitable. They offer many cash benefits and the ability to hold something that is more profitable for a given/stated amount of time (say 12 months or so).

Since an ‘overweight’ rating is given over a desired period of time, investors can choose to do a lot with these stocks. Such as lock them in different portfolios for diversification and expansion.

An overweight recommendation means that investors are devoting a higher percentage of their investors’ portfolio to the stock. Overweight isn’t the only term that is used in stocks.

Other ratings are ‘buy’ and ‘outperform’. These ratings are subjective but essentially given to generalize stocks. In a nutshell, overweight stocks give you the chance to diversify, the chance to explore and buy and the chance to uplift your portfolio.


Overweighting is beneficial because overweight stocks increase portfolio gains. They’re high capital stocks and they hedge against overweight positions. Overweight stocks help you diversify, give stability and help you move forward with higher profits and gains.

An overweight rating meaning by an analyst for a given stock would mean that the performance of said stock will be above the average return of a stock in a particular industry in the next 8-12 months. It’s always better to buy overweight stocks because they allow you to reap higher returns in the near and upcoming future. Lastly, consider our trading companies list when deciding what broker or tools to aide you in your investing or trading quest!

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