Nothing gets a stock going higher like an upgrade and when it comes to upgrades, strong buy stocks are the best pick of the bunch.
So, what exactly are strong buy stocks? The term “strong buy” refers to a rating recommendation given by an analyst for a given stock. It’s the highest recommendation that an analyst can give to a stock and as such, strong buy stocks are coveted. In simple terms, strong buy stocks are expected, by analysts to dramatically outperform the average market return and/or the return of comparable stocks in the same sector or industry. When strong buy stocks get their endorsements they are really at the height of their powers; it is this power that causes an analysts or a set of analysts to emphatically rally behind a stock and give a ringing endorsement. “Strong buy” stands at the apex and outshines all other recommendations including “hold” and “sell”.
Strong Buy Stocks – When a Stock Goes Up
Now, once strong buy stocks receive their endorsements, a frenzy of investor or trading interest usually follows. This is easy to see; a stock that gets an upgraded outlook has promise and upside, the sort of qualities that make it attractive to all. As a result of the increased levels of interest in the stock, prices can rise – not always, but in many cases the strong buy recommendation is capable of sending a stock through the roof.
A few examples may illustrate the tendency of strong buy stocks to rocket north upon getting the highest recommendation. The first example is Deckers Outdoor Corp. (NYSE: DECK). On October 26, 2017, a consensus opinion of strong buy was published by Yahoo Finance. At the time of the upgrade, DECK was trading below $70 and actually finished the day’s trading at $70.16. Once news spread that the consensus opinion was a strong buy, the frenzy started. The following session saw DECK open at $71.90, finishing the day’s trading for October 27th at $72.49. But that was just the beginning; by December 8th, 2017, DECK managed to hit a high of $78.38, a jump of 14% from the initial open of $68.63 on the day the strong buy opinion was posted. Given that this is a big-board stock, the 14% climb over the 45-day period is quite significant. It shows in no small way, the impact that strong buy stocks can have on investors and traders.
Strong Buy Stocks – The Other Side of the Coin
You can also get a sense of what happens a stock doesn’t respond quite so well to a strong buy recommendation. This we see in the case of Huntsman Corporation (NYSE: HUN), another company that was recommended as a strong buy on October 26th and which opened on the day at $29.81. The initial recommendation did provide a small boost but not the huge climb that HUN investors were hoping for. HUN climbed to a high of $32.59 on November 1st, 2017, marking the highest level of trading for the stock since it was recommended as a strong buy. The explanation for why HUN didn’t see the same level of continued movement as DECK is not a simple one, but two things come to mind. The first possible explanation is that we are dealing with two different types of stocks, operating in two different sectors. In cases like those a recommendation for one won’t necessarily ring true for another, though they are recommended strong buy stocks on the same day. The second possible explanation is that despite the strong buy recommendation, HUN didn’t have the momentum going into the recommendation. It must be borne in mind that momentum is one of the underlying factors that make analysts become bullish on some stocks.
Strong Buy Stocks – The Shortcut to Getting In the Know
As is evident with the 50/50 split in results coming from a strong buy recommendation, analysts don’t always get it right. That’s a good thing; because it gives you, the trader or investor, the pause necessarily to make the right decision. Knowing that analysts are fallible helps lay firmer ground for stronger due diligence. On the whole though, strong buy stocks should rise to the top of any watch list once they are discovered.
And speaking of discovery, we sometimes do our own analysis and select our own strong buy stocks. Once selected, we issue them to our subscribers so if you are interested in getting those kind of alerts, please sign up here.