Underweight (stock market)
Encyclopedia
In financial markets
, underweight is a term used when rating stock
. A rating system may be three-tiered: "overweight
", "equal weight" and "underweight", or five-tiered: "buy," "overweight," "hold," "underweight," and "sell".
If a stock is deemed "underweight" the analyst is saying they consider that the investor should reduce their holding, so that it should "weigh" less.
For example, if an investor has 10% of their stocks in Retail, 25% in Manufacturing, 50% in Hi-Tech, and 15% in Defense, and the broker says that Retail is "underweight", then they are implying that a smaller percentage of the stocks should be in Retail.
The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
, underweight is a term used when rating stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
. A rating system may be three-tiered: "overweight
Overweight (stock market)
Overweight is part of a three-tiered rating system, along with "underweight" and "equal weight", used by financial analysts to indicate a particular stock's attractiveness...
", "equal weight" and "underweight", or five-tiered: "buy," "overweight," "hold," "underweight," and "sell".
If a stock is deemed "underweight" the analyst is saying they consider that the investor should reduce their holding, so that it should "weigh" less.
For example, if an investor has 10% of their stocks in Retail, 25% in Manufacturing, 50% in Hi-Tech, and 15% in Defense, and the broker says that Retail is "underweight", then they are implying that a smaller percentage of the stocks should be in Retail.
The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months