Morgan Stanley & Co. unveiled a new stock recommendation system, scraping its long-used but often inadequate "buy," "hold," or "sell" ratings
The company hopes the new system, which has four levels of recommendations instead of its old three, will promote more usage of its analysts' ratings, said Mayree C. Clark, global research director, at the New York-based firm in a report to clients.
Without explicitly naming them, she noted the company hopes the new system will appease sometimes conflicting constituencies - issuers and investors.
"Like other Wall Street firms, we serve a variety of constituencies," she said. "Sometimes pessimistic opinions on stock performance can be misconstrued as negative comments on companies themselves or their managements. We want to make it clear that our investment recommendations are focused on expected stock price performance."
The ratings "better reflect the shadings of analysts' viewpoints and the varying needs of our institutional clients," she noted.
The new ratings are:
"Strong buy," representing stocks analysts expect to outperform in the near term, specifically an annualized return of at least 20%, relative to a flat market.
"Outperform," for stocks analysts expect to exceed a risk-adjusted return requirement and those that are attractive relative to other investments in the groups the analysts follow.
"Neutral," which describes stocks analysts believe are neither attractive nor unattractive. "Many very good companies with fairly valued stock prices will fall into this category," Ms. Clark said.
"Underperform" represents stocks analysts believe will underperform appropriate risk-adjusted return thresholds.