As far as investment analysis is concerned, credit rating and equity research refer to different valuations used for different types of investments. Credit ratings are used for debt-based instruments; just like individual credit ratings represent the likelihood of consumer repayment, investment credit ratings represent the likelihood the issuing body will repay investors. Equity research is concerned with non-debt equity securities, such as company shares. Equity research is used to guess at the possibility of asset appreciation, dividend payouts and other equity valuations.
Neither credit ratings nor equity research are meant to act as recommendations to purchase any specific investment; rather, they are only inputs used by investors to evaluate and compare investments. Your investing strategy should be based on several other factors, including your own time horizon and risk tolerance.
Investment Credit Ratings
There are three major credit rating agencies for investment products: Moody's, Standard & Poor, or S&P, and Fitch. These agencies are responsible for more than 90% of the listed credit ratings for global debt instruments. Credit ratings are assigned to short-term debt, long-term debt, securities, business loans and preferred stock. Due to the nature of the insurance business model, credit ratings are also handed out for insurance companies to evaluate their ability to meet their obligations for insurance claims.
Credit ratings in the investment world are usually represented by letters, not numbers as with consumer credit scores. The exact letters used vary between types of investments and the issuing credit rating agency. For example, S&P's ratings for long-term debts range from "AAA" to "D," moving from safest to most speculative. Ratings are applied to specific debt obligations or debt issuers as a whole and can be downgraded or upgraded if circumstances or information changes.
Investment Equity Research
Not all equity research is easily comparable. Research offered by major brokerage firms, or "Wall Street research," is generally very focused on large and liquid equity investments. There are many reasons for this, but perhaps the most significant factor is that large-cap stock analysis tends to be more profitable. After all, large investors pay the most for research. Smaller, independent research firms provide much of the research on other equity investments, sometimes on a fee-based basis. This information can be harder to obtain, although the proliferation of Internet-based analyses has helped make analysis more widely available.
Equity research is focused on the risk-return potential of an investment. In theory, equities are more risky than debt instruments. Research also tends to be specialized into asset categories, such as "mining," "health care," "retail," etc. Equity research can be both highly quantitative and/or more nuanced, to provide insight into both company-specific variables and sector- or market-wide variables. Both credit ratings and equity research are useful and important tools made available for investors, but neither should be taken as the end-all-be-all for making investment choices.