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Consensus Ratings

Firms such as First Call, Zacks, and Multex compile the analysts' individual buy/sell ratings into a consensus figure. They do that by first assigning each brokerage's individual ratings into one of five categories: strong buy, buy, hold, sell, and strong sell. They assign each category a numerical weight as shown in Table 4-1.

The compiler tabulates and averages the individual analyst's ratings. For instance, if three analysts all rate a stock strong buy, the total equates to 3, and the average (total divided by number or ratings) is 1. The consensus rating for a stock with one strong buy (1) and one hold (3) would be 2 (4/2), equating to a buy, even though neither of the analysts actually rated the stock a buy. The consensus is 2.7 (16/6) if three analysts say hold (9), two say strong buy (2), and one rates the stock a strong sell (5). Table 4-2 illustrates how the ratings are shown on Yahoo's Research page.


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