What to Do When the Schwab Equity Rating® Disappears

Key Points

  • If the Schwab Equity Rating® of a stock you hold is replaced by an NR, there are several steps you can take.
  • You'll want to check Schwab's Equity Scorecard for the stock, news about the company and the market's reaction to the news, along with any third-party commentary and research reports.
  • Finally, after completing the research steps and reflecting on what you've learned, you may want to consider taking action based on your individual investment objective.

What steps should you take if your stock's rating is replaced by an NR (not rated)? Use our four-step research process to help you decide your next move.

Step 1: Check the scorecard

The first step is to click on the NR that appears where your stock's Schwab Equity Rating® would normally be displayed. This generates the "Equity Scorecard"; a quick look at the Schwab rating, including the date the rating was assigned and a brief explanation of the underlying event. Please pay particular attention to the date and explanatory text (the circled information in the second image below), as these will guide your next steps. (You may also want to print the scorecard, using the "Print" icon in the upper right-hand corner, and keep it handy as you continue your research).
 

Viewing Schwab's Equity Scorecard

Viewing Schwabs Equity Scorecard

Historical data for illustrative purposes only.

Understanding the Schwab Equity Scorecard

Understanding the Schwab Equity Scorecard

Historical data for illustrative purposes only.

Step 2: Check the news

After you enter a ticker symbol, the "Stock Summary" page on Schwab.com will appear. Don't stop there—the "News" tab provides access to news headlines from multiple sources, company press releases, and company "EDGAR" filings with the Securities & Exchange Commission. Look for new stories, and any recent EDGAR filings as well, that are specific to the stock you're researching and with a time period around the date shown in the Equity Scorecard.

Schwab.com "News" tab

Schwab.com News tab

Historical data for illustrative purposes only.

When researching an NR rating, make sure to pay close attention to the following data, as it may help you in understanding the implications of the event:

  • The nature of the event. 
  • The event's scope. Is it specific to the company or part of a larger picture? (Industry-wide, sector-wide, etc.) The story stated that ABT was doing so, but gave no indication that the decision was a consequence of industry or sector trends of any sort.
  • Comments by securities analysts, regulators, investors or corporate officials. Any of these sources may provide clues about the implications of the event. Keep your eyes open for negative terms—a June 2008 article in the Journal of Finance1 suggested that negative words in a news story (for example, "disappointing," "unexpected," "abused," "sternly disciplined" or " violated"), particularly about a company's earnings, were a possible indicator of poor future returns.

Step 3: Check the market's reaction

When researching a stock on Schwab.com, use the stock's "Charts" tab to view the behavior of the stock's price around the date when the event occurred. An important point to keep in mind is the distinction between a stock's price performance and its relative performance (that is, in comparison to the market in general and to its economic sector).

Schwab.com "Charts" tab

Schwab.com Charts tab

Historical data for illustrative purposes only.

Some features of the "Charts" tab that may help you in your research are:

  • The "Indicators" drop-down list allows you to examine, among many other measures, historical trading volume. In conjunction with historical prices, volume can be useful in determining whether the news event you're researching was significant (possibly indicated by a spike in volume) as well as favorable or unfavorable (as evidenced by the market's reaction to the announcement). For Tesoro Corp., the announcement on Aug. 13, 2012 that the firm was acquiring refinery assets from another company did not seem to result in a significant market reaction in terms of either price or volume.
  • The "Comparisons" feature allows you to view the stock's price relative to the market's performance, using the S&P 500® or another index, such as the Russell 2000®, which is a more appropriate benchmark for small-capitalization stocks. You can also compare the stock's performance to the performance of its sector and industry (requires a 3-month chart or longer for sector and industry data).

The image above, for example, shows the performance of the S&P 500, the Energy sector, and the Oil, Gas, and Consumable Fuels industry.2 If the market was down by 4% on the day of the event and your stock was down by roughly the same amount, the stock's relative price change may be insignificant. A larger price change, relative to the market, sector or industry, indicates that the event had a more serious effect.

  • You should also pay close attention to the market's reaction after the event—a significant post-event price recovery in relative terms may indicate an initial overreaction and later reassessment.

Step 4: Check third-party opinions and research reports

Schwab provides research reports and analysis from several independent sources, including Standard & Poor's, Credit Suisse3, Ned Davis Research, Argus Research and others. Links to these reports appear on the Summary, Ratings (Other Ratings), and Reports tabs on Schwab.com. Frequently, analysts at these firms can produce a research report within a day or two of an event.

What should you look for in a third-party research report? Focus on the same things you considered in reviewing the news—an informed, written assessment of the nature of the event, its scope and its implications for investors. You can also see recent changes in brokerage firm analysts' earnings estimates and recommendations by visiting the Reports tab on Schwab.com and clicking the link to the Schwab Earnings Report.

Time to take stock: Consider selling

After completing the research steps described above, take a moment to reflect on what you've learned. If the news stories, the market's reaction, and third-party research sources all suggest that the event is significant and negative, you might want to consider taking action based on your individual investment objective.

Next Steps

For more on the research behind Schwab Equity Ratings and how to use them, read Schwab Equity Ratings® Foundations and Managing a Stock Portfolio Using Schwab Equity Ratings.

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