When You Marry Our Ratings to Wall Street’s, It’s a Great Match!

You’ve probably heard about the games Wall Street banks play. In fact, it’s almost like Willy Wonka’s chocolate factory with analysts. They’re like Oopma Loompas moving in concert to the tune of the music, issuing BUY Ratings and high price targets to their customers’ (investors) delight.

But even if you think the Oompa Loompa metaphor is a bit harsh, the problem with Wall Street is there’s little incentive to be outside of the herd. If all of your fellow analysts like a stock, you’ll keep your job if you stay in the pack and also like the stock. That’s because even if you’re wrong, you weren’t wrong alone. I know, because I’ve been there and experienced it firsthand.

But what if you could check the veracity of Wall Street’s BUY rankings? What if you marry the independent, conflict-of-interest-free Weiss Ratings with traditional analyst rankings? Turns out, that generates much better performance, and provides much more peace of mind!

Let’s start with our Ratings. We believe they provide a solid, time-tested way of identifying winning stocks to buy, and losing stocks to avoid.

Take a look at the chart below. It shows what would’ve happened if you had bought our Top-10 “A” (BUY) rated stocks in 2010, and rebalanced along the way since then to ensure you always remained in names with our best Ratings.

Top 10 “A” Rated Stocks – Performance Since 2010

In the chart, the red line shows the results of that strategy, while the green line shows the S&P 500. You can see the performance gap is enormous: You could’ve made 328% following our Ratings, versus 134% just investing in the market.

Now take a look at this chart, which shows what would’ve happened if you invested in even the best “D”-Rated (SELL) stocks during that same time frame. Our back-testing shows you would’ve earned just 17% … lagging far behind the S&P 500 despite the multi-year bull market.

Top 10 “D” Rated Stocks – Performance Since 2010

These numbers don’t lie – the value of having our Weiss Ratings as a guidepost for your portfolio is indispensable. Share the Ratings information with a friend, family member, or anyone else you like and they’ll thank you in the long term!

But I digress – back to the lecture at hand. We recently studied the performance of traditional Wall Street recommendations on their own. Specifically, we identified stocks that had the highest average analyst price targets to see if those high targets provided any ounce of forward-looking performance insight. Suffice it to say that method of picking “winners” failed!

But then we decided to do something intuitive and different. We looked at stocks that have a higher percentage of Wall Street BUY ratings, but ALSO strong Ratings from Weiss. The idea? Check to make sure Wall Street analysts were on target, eliminate the problem of herd mentality bias, and determine if this approach to investing was more profitable.

The results were eye opening to say the least!

Stocks with 100% BUY ratings from Wall Street did fare better than stocks with lower BUY percentages. You could expect to earn roughly 38% from stocks with unanimous BUYS over a 1-year time horizon, 22% with 50%-BUY stocks, and around 7% with 10%-BUY stocks.

But if you layered our Ratings on TOP of the Buy Percentage figures, the returns were consistently higher. You could’ve earned more than 48% owning stocks that received both 100% BUYS from Wall Street AND “A” Ratings from us, and more than 25% from stocks receiving only 50% BUYS from Wall Street, but “A” Ratings from us.

In fact, even if you picked stocks with only 10% of Wall Street analysts rating them BUY … but with us giving them “A” Ratings … you’d still be up 25.7% on average. That’s compared to around 7% if you just followed Wall Street.

Bottom line: Our research shows that if you marry our Weiss Ratings with traditional Wall Street grades, it’ll make a great match for your portfolio! Focus specifically on stocks that we grade either BUY or HOLD, and that also have at least 60% of Wall Street analysts bullish on them.

Best,

Mandeep

Small Cap Edition, By Mandeep Rai, Senior Analyst Mandeep Rai has more than 15 years of investing experience, working as both a stock and credit analyst. At Weiss Ratings, he researches and evaluates financial and economic themes, and makes decisions on when to buy or sell specific shares for the Top Stocks Under $10 portfolio.