Help with interpreting stock market terminologies

B

bi-lo

#1
I started investing in certain company listed in Philippine Stock Exchange index since July 2013 via a broker. I plan on buying on a monthly basis. Said company (stock) is recommended "hold" by the broker, which means:

Stocks that have a HOLD rating have either
1. attractive fundamentals but expensive valuation
2) attractive valuations but near term earnings outlook might be poor or vulnerable to numerous risks.
Given the said factors, the share price of the stocks may perform merely inline or underperform the market in the next six to twelve months.

The way I understand it is that the market is expected to have lower yield within 2013 and 2014. Would anyone be able to tell me if I understood the explanation correctly? Should I transfer my investment to other company or stock?

Thanks in Advance!
 
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Mikishots

Trusted Information Resource
#2
Typically, what this means is exactly what it sounds like - hold off on significant transactions until more visibility into trending can be seen. Houses rarely issue anything less than "hold", so that's why you would very rarely see any listed as "sell".

Different brokerage houses can use the term differently, but a "hold" is typically better than sell, but not better than buy - right in the middle as expected.

So..what to do? If you were to see a stock drop from "strong buy" to "hold" in a relatively short amount of time, look into it carefully - it can make the difference between losing or getting out just in time.
 

Wes Bucey

Quite Involved in Discussions
#3
First, it's good that you are putting "part" of your nest eggs into stocks. (Rarely a good idea to put all your eggs in one basket.)

Second, small stockholders (less than 10,000 shares by many broker guidelines) are rarely privy to timely information to jump in and out of a stock ahead of the general market move. This is offset by having an inside track on information of the company whose stock is held. When we discuss Deming's System of Profound Knowledge (SoPK), we know a company employee far down the ladder from those normally listed as "insiders" can, in fact, have good information equal to or better than third party stock analysts and so can "possibly" make moves ahead of the market. It is tricky, and company employees should discuss their status and knowledge sources with an attorney FIRST to avoid being termed "insider" by SEC investigators.

Similarly, trading in the stocks of suppliers or customers also has advantages and pitfalls.

If your stock purchases don't fall in those categories, you are best served by getting very comfortable with the broker who handles your account and be forthcoming about your expectations in owning stock - quick profit? current income? long-term growth? inflation hedge? etc. - and trust his recommendation to buy, sell, hold any particular stock.

Some folks are day traders (I have a cousin who took early retirement and day trades via computer under the shade of a tree in his back yard.) A day trader is dealing with discount brokers so his profits aren't eaten by brokerage fees. Those day traders pay attention to hold, buy, and sell recommendations floating around various brokerage houses ONLY as cues for them to do further personal research on such stocks to come to their own conclusions.

Finally, recognize the difference between "investing" and "trading" - they may not always be the same thing.
 
B

bi-lo

#4
Thanks Mikishots and Wes!

I'm a neophyte in stock market. I'm not a day trader. I picked two companies.. bought share of stocks and gradually increase each month as a savings. In short, long term investment with the presumption that the share prices of 'good' company/stock increases through time.

Problem is one of the stocks I picked recommended by the broker as "hold". I asked them if they can forecast a potential for hitting it big (or gain growth) next year or maybe the year to come being the leader in the industry. I told them that I wish to know from their perspective if I did the right timing buying it now as it is cheap now.

Here is the broker's reply:

I am not sure if I understood your question correctly, but are you asking me at level Company ABC’s share price will be next year? Well, our FV estimate for Company ABC is at Php42.3/sh, and all of our FV estimates have a time horizon of 1 year. For companies in general, being an industry leader is a plus in terms of stock appreciation potential, but you also have to consider other factors such as the stock’s valuation, earnings growth outlook etc. For Company ABC, although it offers good valuation and is an industry leader in terms of profitability, the downside for this stock is that short term earnings, from 2013 to 2014, will be under pressure due to several factors (please read my previous reports on Company ABC in our website archive), thus the HOLD rating. I hope i answered your question.

If I understood their explanation correctly, the market is expected to have lower yield within 2013 and 2014. I'm confused whether the "hold" recommendation means I should transfer my Company ABC investment to other company or not since I preferred a long term investment style.


Additional info:

Broker's definition of "Buy" and "Sell" ratings:

Buy - Stocks that have a BUY rating have attractive fundamentals and valuations, based on our analysis. We expect the share price to outperform the market in the next six years to twelve months.

Sell - We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to twelve months.

For the "Hold" rating, please refer to my initial post.
 

Wes Bucey

Quite Involved in Discussions
#5
Since I don't know the identity of the company in question, nor do I have any inkling about your personal finances, I'm not in a position to counsel you on any individual stock decision as I used to do for the clients of my investment bank in the 70s and 80s. Let me emphasize that a reputable and ethical brokerage house usually means that a shareholder should continue to hold a stock on its "hold" list because it feels that the brokerage costs of selling one stock and replacing it with another will result in a net loss.

Rather than incurring "no value added" trading losses, such brokers usually advise buying an additional stock on its "buy" list, thus averaging out. Obviously, a lot depends on whether you have ANY profit locked in on the "hold" stock which would far outweigh the brokerage fees of trading for another stock.

I want to point out that I am NOT advising you on any particular stock, nor would I unless you were a paying client. I am trying to enlarge your knowledge (and that of any casual reader who is similarly unlearned) of how the business works in a general way, WITHOUT leaving myself open to questions of "back channel touting" so prevalent all over the internet.
 
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