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Systems Weighted

What does it mean when a stock analyst says "upgraded A123 Systems (AONE) from equal weight to overweight."?

What does equal weight mean? What does overweight mean? What does it mean when a company is upgraded from equal to overweight?

For the most part, these terms refer to and reflect the weightings of the various sectors and the stocks therein of the S&P 500. You can learn what percentage the various economic sectors of the economy are reflected in the S&P 500 on this web page;

http://www2.standardandpoors.com/spf/pdf/index/SP_500_Factsheet.pdf

For a list of the 500 companies that make up the S&P 500, check this Wikipedia entry;

http://en.wikipedia.org/wiki/List_of_S%26P_500_companies

You can sort that list by sector by clicking the little square icon to the right of the words "GCIS Sector" in the column heading.

A position that is "Evenweight" is one that is close to or exactly what the S&P sector represents, in other words, if you have 18.5% of your stock portfolio invested in Information Technology firms, you are evenweight for that sector. Lowering the percentage (selling shares of info tech companies) would "underweight" you and buying more would "overweight" you.

When it gets down to specific stocks, the same idea still applies. If there are 100 firms that make up the Info Tech sector, and the market capitalization is exactly the same for all of them (it never is, but bear with me for this hypothetical) then theoretically you would want an even dollar amount invested in each of those 100 companies such that the total of that investment amounted to 18.5% of your portfolio (using 18.5% because that is the sector weighting of Info Tech given in the link I provided above). If the analyst says "Overweight XYZ in the Info Tech sector", he is suggesting you buy more shares of just that position.

Lets say you had $100,000 in a stock portfolio. In the above example you would have $18,500 invested in IT stocks. Take my hypothetical one step further and say that there are 100 IT stocks on the list and you have $185.00 worth of stock in each one. If the aim is to overweight one particular issue, then you might consider buying say another $15 worth. What this does however is give you a slight overweight on the entire sector. If the common wisdom is to stay even weight on the sector but over weight on one particular stock, then one might consider selling off a few shares of each of the other 99 positions in order to keep the money invested in that sector at $18,500.

Clear?

Hope that helps a little more.

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Power Systems Weighted Vest To The Test!

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