What Is a Focus List?
A focus list is a list of recommended stocks published by an investment firm's research department. Focus lists generally consist of a small number of stocks that the firm believes are the most attractive opportunities at the time.
- A focus list is a list of stocks that the publisher determines are attractive purchases.
- Analysts typically rate stocks in terms of "buy," "outperform," "hold," "underperform," or "sell." Stocks on a focus list typically have Buy ratings from the analyst or analyst firm.
- Investors are encouraged to do their own research, both on the firm making recommendations as well as the stocks being recommended, before investing.
Understanding Focus Lists
A focus list is a virtual portfolio that research departments generate to help investors make trading decisions. Analysts' recommendations are the fountainhead of equity research reports and should be used in tangent with proprietary research and investment methodologies in order to make investment decisions.
Like any profession, there are research firms that tend to pick better stocks than others, and certain analysts whose picks tend to outperform their peers, and vice versa.
How Analyst Recommendations Work
Analyst stock recommendations are typically classified as buy, outperform, hold, underperform, or sell. In order to reach an opinion and communicate the value and volatility of a security, analysts research public financial statements, listen in on conference calls, and talk to managers and the customers of a company, typically in an attempt to come up with findings for a research report.
The definitions of the analyst ratings vary from firm to firm, but largely adhere to the following criteria:
- Buy: Also known as "strong buy" or "on the recommended list," a buy rating is a recommendation to purchase a specific security.
- Sell: Also known as "strong sell," it's a recommendation to sell a security or to liquidate an asset.
- Hold: In general terms, a company with a hold recommendation is expected to perform at the same pace as comparable companies or in line with market indexes.
- Underperform: A recommendation that means a stock is expected to do slightly worse than the overall stock market return, underperform can also be expressed as "moderate sell," "weak hold," or "underweight."
- Outperform: Also known as "moderate buy," "accumulate," or "overweight," outperform is an analyst recommendation meaning a stock is expected to do better than the market indexes.
Focus lists and recommendations are based on the firm's independent research. The research reports will typically provide insights on how far the stock price may rise or fall, and within what timeframe.
Real-World Example of a Focus List
Edward Jones, a financial services company, regularly publishes a U.S. Stock Focus List for investors, zeroing in on longer-term investments it considers "buys."
The company tracks how the focus list compares to the S&P 500 index. Over a 10-year period, the focus list has outperformed the S&P 500 by about 0.8% per year, according to their December 2020 report (as of September 30, 2020).
The focus list contains stocks from each sector, so the focus list will typically contain more than 30 stocks. The December 2020 list contained 53. This is more than most investors would want to buy, but the list may provide a starting point for research. The investor could then decide which stocks on the list meet their investment objectives.
Stocks on this focus list included Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), Procter & Gamble Co. (PG), Chevron Corp. (CVX), Aflac Inc. (AFL), Abbott Laboratories (ABT), Deere & Co. (DE), Adobe Inc. (ADBE), and Duke Energy Corp. (DUK).