The analysts’ ratings tell you a lot about the market’s expectations for the company. For instance, you’d interpret the information differently if 20 out of the 29 analysts covering Lucent said strong buy, instead of only 3 advising buying Lucent’s shares.
I devised a rule of thumb for using the analysts’ ratings to gauge the market’s enthusiasm, or excitement for a stock, at least from the analysts’ perspective. I call it the Sentiment Index. You calculate the Sentiment Index by adding points for strong buy ratings and subtracting points for holds and sells. Regular buys are ignored.
Strong buy: Add the number of “strong buy” ratings.
Hold, sell, and strong sell: Subtract a point for each of these ...