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Overweight (stock market)

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Within the stock market, the term overweight can refer to two different contexts.[1]

1) Overweight as part of a three-tiered rating system, along with "underweight" and "equal weight", is used by financial analysts to indicate a particular stock's attractiveness. If a stock is recommended to be "overweight", the analyst opines that the stock is better value for money than others.[2]

2) An investment portfolio judged to be overweight indicates that an investor holds proportionately more than the benchmark weight of a certain asset (a share, bond, industry/sector, country, currency, or asset class, etc.).[3]

Examples

Definition 1: If a particular stock is selling for $500 and the analyst feels that the stock is worth $600, the analyst would be declaring the stock to be overweight.

Definition 2: Suppose that Technology stocks make up 10% of the relevant stock index by market value. For example, the weight of the Technology sector in the index could be 10%.[citation needed]

Overweight — Suppose that an investor holds 15% of his/her investment in Technology stocks. The investor's stock portfolio is then 5% overweight in Technology stocks.[citation needed]

Suppose further that the investor is advised by his broker or financial adviser that Technology should be "overweight". The investor is being advised to hold more investments in Technology, as a percentage, than the weight of that asset in the index/market. In this example, the recommendation is to hold more than 10% by value of Technology shares.[citation needed]

Underweight — In contrast to overweight holding, if the broker advises that Technology should be "underweight", the recommendation to the investor is to hold less than 10% by value of Technology shares.[citation needed]

Equal weight - The third possibility is that the broker advises that Technology should be "equal weight". In which case, the recommendation is to hold 10% by value of Technology shares.[citation needed]

References

  1. ^ "Definition of Overweight". Investopedia. Retrieved 4 January 2013.
  2. ^ Updegrave, Walter (2003-08-19). "Glossary please! What do terms like "overweight" and "underweight" mean, anyway?". CNNMoney.com, Ask the Expert. Retrieved 2007-01-03.
  3. ^ https://www.stock-ratings.com/ratingscalc/

There are several websites that offer their ratings on specific tickers. Zacks.com, Marketwatch.com,RatingStocks.com,Stock-Ratings.com, Buckster.com and theStreet.com are some of them.

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