What does an overweight stock rating mean?

An overweight stock can also mean that an investor has a large allocation to a stock in their portfolio. Here's a look at what an overweight stock rating means, why analysts use the term, how to overweight a stock, and some examples. Image source: Getty Images. Why do analysts use an overweight stock rating?

What makes a stock an overweight stock?

A stock is rated an Overweight stock by analysts when they discover factors that augur good price performance over the next six to 12 months. The Overweight rating is given when the analyst thinks the stock will outperform other stocks in its market sector or those in a market index like the Standard and Poor’s 500.

What does it mean if a stock is “overweight” or “underweight”?

If an analyst provides an “overweight” rating on a stock, they are saying that the company should soon receive a higher “weight” in any index it is a part of. Some firms will use “overweight” and “underweight” in reference to sectors instead of specific stocks. For instance, they may issue a report stating that the retail sector is “overweight.”