A strong buy is a qualified recommendation from a broker or analyst to purchase a particular stock within a specific time frame. Prior to making this type of recommendation, analysts tend to investigate all factors that are likely to impact the value of the shares over both the short-term and the long-term. Unless the financial professional is convinced that making the purchase will yield the desired results, he or she will tend to avoid making such an emphatic recommendation to clients.
One of the characteristics of a strong buy is that the stock is anticipated to shortly achieve an unusually high rate of performance in the market place. The stock’s performance will be noticeably different from the performance of similar stock offerings, in that the growth of the stock will far exceed the growth of those other stocks. Thus, it is not enough that a given stock must demonstrate the potential to increase in value; that increase must be somewhat dramatic in comparison to what is happening with stocks issued by similar companies and traded in the same market.
It is important to note that several different factors can prompt a broker or analyst to declare a given option is a strong buy. Should the company issuing the stock be about to merge with a major competitor, the completion of that merger may lead to a dramatic increase in the value of the shares issued by both companies. In like manner, if an executive who was instrumental in the success of one company chooses to leave and take a position with a new company, this may cause analysts to project a significant upswing in the value of the stock options issued by the new employer. If there is reason to believe that upcoming political events will greatly strengthen the presence of a given company within an industry, that may be enough to declare the stock issued by that company to be a strong buy.
As with any type of stock advice, a strong buy does not guarantee that the stock will perform as projected. Should any of the underlying reasons for the projection fail to materialize, there is a good chance that the stock option will continue performing at current levels, or experience some minor increase. For this reason, investors should always find out why an analyst has identified a stock option as a strong buy. This includes looking closely at the indicators that influenced the opinion of the analyst, and determine if the investor comes to the same conclusion.
