Initiating Coverage

Q

What does it mean when a company “initiates coverage” on a stock? — R.I., Redmond, Washington

A

Financial companies such as banks and brokerages often have analysts who research companies and report on their potential as investments. When a bank or brokerage initiates coverage of a company, that means at least one of its analysts has begun to follow the stock and will report on it regularly— often labeling it with a rating, such as “buy,” “hold” or “sell.” (It’s typically rare to see a “sell” rating: The analyst’s employer may not want to insult a company with which it might do business, now or in the future.)

Many brokerages offer gobs of research reports on companies, which can be far more informative than a single one-word rating. Look into what research your brokerage offers, or read up on better brokerages at TheAscent.com.

To see many stocks Motley Fool analysts have recommended, try our Stock Advisor service at Fool.com/services.

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Q

What’s a mutual fund’s “NAV”?— T.Y., online

A

NAV stands for net asset value: the fund’s per-share value. As funds generally hold many different securities (plus cash and cash equivalents), the total value of a fund’s holdings is tallied at the end of each trading day, and any receivables or accrued income are added. Then the mutual fund’s expenses for the day, such as trading commissions and operating costs, are subtracted. The result is divided by the fund’s number of shares; that gives you the net asset value of the fund.

Note that the NAV doesn’t account for money distributed to shareholders, such as dividends. When evaluating a fund’s performance, focus on its total return over time, not its changing NAV.

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