How to Leverage Market Research As Part of Your Investment Strategy

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Developing an effective investment strategy requires market insights. A discounted cash flow (DCF) analysis is one way to do this by determining how much an investment is worth and calculating the present value of expected future cash flows. 

In theory, a DCF analysis is arguably the best way to determine the value of a stock; there may be nothing more important than the present value of future cash flows, after all. In practice, however, a DCF analysis should be used in conjunction with other types of analysis because it is difficult to accurately estimate cash flows over the next year—let alone five to 10 years into the future.

All that said, the DCF analysis points us to what’s really important when evaluating an investment: the future. While backward-looking metrics, like price/earnings ratios, are a good starting point for investment decisions, you ultimately need to learn about the future prospects of companies to make sound decisions. Reading research reports is one of the best ways to do that.

What is a Research Report?

A research report is a document created by a market professional that focuses on the investment prospects of a specific company, sector, or country. The reports contain both qualitative and quantitative research, and generally provide actionable recommendations (buy/hold/sell) for readers.

With in-depth insights, research reports can be a valuable tool for investors interested in making strategic investment decisions. This is especially true for reports that include broader market trends and provide context for the recommendations they share.

What Topics are Covered in Analyst Reports?

A quality research report is a comprehensive document that examines everything that impacts the viability of an investment. Accordingly, it looks at several factors including:

  • The company’s position in the marketplace: Is the market for its offerings growing or shrinking? How does its solution compare to the alternatives? Is the product/service going to be obsolete in the near future?
  • Margins: Are the company’s margins likely to increase or decrease in the future?
  • Valuation and Growth Analysis: What is the company’s fair value and EPS growth estimate?
  • Risk: What risk factors—such as economic, political, cyclical, currency, and supply chain—may impact share price?
  • Management: Does the company have the right leadership to guide it past current and future obstacles?
  • Guidance: What is management’s forward earnings guidance?

There are many more factors to consider, but those are a few of the high-level questions that are commonly answered in research reports.

Why Research Reports are So Necessary

If you’re wondering whether research reports are really necessary to make investment decisions, consider two of the many examples where the commonly referenced numbers were a poor indicator of investment viability.

In November 2011, Amazon was trading at 94 times projected 2012 earnings, a massive premium over other companies in the same sector. But the company ended up experiencing explosive growth throughout the 2010s. Amazon has consistently traded above $3,000 a share in 2021, more than 15x higher than November 2011 levels.

On the other end of the spectrum, we have Blockbuster. In 2004, the company peaked with $5.9 billion in revenue and 9,000 global stores. By 2010, Blockbuster filed for bankruptcy and closed nearly all of its stores. By carefully tracking company performance, research reports would have been able to provide the type of insights investors needed to determine that Amazon was not overvalued and that Blockbuster was not a sustainable long-term investment.

While research reports won’t be able to help you identify every Amazon and Blockbuster, they will help you find more of these deviations than you otherwise would have. They can also give you overall market insights to help you hedge against volatility when necessary. 

Look for Quality Independent Research to Invest with Confidence

Several companies publish research reports, but not every research report meets high standards. To get the insights you need, it’s important to look for two things: quality and independence.

What does quality mean in the context of research reports? A quality research report is thorough, with the professional not leaving any stone unturned. With investment research, this is crucial: imagine an analyst not fully considering the impact of Netflix on Blockbuster’s prospects in 2004. It’s also important for research to be independent in order to eliminate potential conflicts of interest.

Yahoo Finance Plus provides investors with quality independent research reports from top-notch providers like Morningstar and Argus, covering more than 3,000 unique tickers. The reports provide in-depth information and analysis, enabling you to make educated investment decisions. Subscribers can get real-time notifications based on emerging market conditions whenever equity analysts update their investment thesis for the companies they follow.

What’s more, Yahoo Finance Plus releases new research daily and the reports can be filtered in a variety of ways to unlock key insights. If you’re interested in learning more, you can start a 14-day trial to explore them for free.

Taking your investments to the next level requires a keen understanding of market movements and company performance. By reading research reports, you can get the insight you need to create a better portfolio—a portfolio that is built based on what’s going to happen, instead of what has already happened.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Kiplinger. “Is Amazon.com's Stock in Bubble Territory?, https://www.kiplinger.com/article/investing/t052-c008-s001-is-amazon-com-s-stock-in-bubble-territory.html.” Accessed October 12, 2021.

  2. Business Insider. “The rise and fall of Blockbuster, https://www.businessinsider.com/rise-and-fall-of-blockbuster.” Accessed October 12, 2021.