You see, brokerages use the same terms for different opinions. There are two problems with analyst ratings . First, a rating is often based on a price target, which is a guess at where the stock will be trading within the next six to 12 months. Fools know that no one can accurately predict the market's movements in the short term, let alone a stock's exact future value. Secondly, the system is infected by a serious conflict of interest.
Brokerage firms do more than research companies and make goofy commercials.
They also provide consultation and investment banking services to corporations. That means BIG bucks. Earlier this year, Borders Group hired Merrill Lynch as a consultant. On the same day, a Merrill Lynch analyst raised his rating on the company. This is not to say that research reports are useless.