Underweight (stock market)

In financial markets, underweight is a term used when rating stock. A rating system may be three-tiered: "overweight", "equal weight" and "underweight", or five-tiered: "buy", "overweight", "hold", "underweight" and "sell". Also used are "outperform", "neutral", "underperform" and "buy", "accumulate", "hold", "reduce", "sell".

If a stock is deemed "underweight" the analyst is saying they consider that the investor should reduce their holding, so that it should "weigh" less. For example, if an investor has 10% of their stocks in Retail, 25% in Manufacturing, 50% in Hi-Tech, and 15% in Defense, and the broker says that Retail is "underweight", then they are implying that a smaller percentage of the stocks should be in Retail. The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.