As analysts are the key information intermediaries in capital markets, initiation of coverage by them offers critical information on a stock which is of great value to investors.
Coverage initiation by analyst(s) on a stock portrays higher investor inclination. Investors, on their part, often assume there is something special in a stock to attract analysts’ interest. In other words, they believe that the company coming under coverage has value that can’t be ignored.
Obviously, stocks are not randomly chosen to cover. New coverage usually reflects a reassuring future envisioned by the analyst(s). At times, increased investors’ focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t love to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly-added stocks are more favorable than ratings on continuously covered stocks.
It is worth mentioning here that the average change in broker recommendation is always preferred over a single recommendation change.
New Analyst Coverage & Impact on Price Movement
The price movement of a stock is the function of the recommendations on it from new analysts. Typically, stocks see an upward price movement on new analyst coverage compared to what was witnessed with a rating upgrade under an existing coverage. Positive recommendations – Buy and Strong Buy – generally lead to a significantly positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
Meanwhile, investors start paying more attention to the stock (that has very few or no existing coverage) on which an analyst provides a new recommendation. Also, any new information attracts portfolio managers to build a position in the stock.
Below, we have selected five stocks that have seen increased analyst coverage over the last few weeks.
Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago
(This will shortlist stocks that have recent new coverage).
Average Broker Rating less than Average Broker Rating four weeks ago
(‘Less than’ means ‘better than’ four weeks ago).
Increased analyst coverage and improving average rating are the primary criteria of this strategy but one should consider other relevant parameters to make the strategy foolproof.
Here are the other screening parameters:
Price greater than or equal to $5
(as a stock below $5 will not likely create significant interest for most investors).
Average Daily Volume greater than or equal to 100,000 shares
(if volume isn’t enough, it will not attract individual investors).
Here are five of 18 stocks that passed the screen:
Interactive Brokers Group, Inc.
: Based in Greenwich, CT, Interactive Brokers Group operates as an automated global electronic market maker and broker. The stock carries a Zacks Rank #2 (Buy) and has gained 22.7% year to date compared with its
’s 21.9% growth. Earnings estimates have moved up 8.8% over the past 60 days for 2021. Earnings for the company are expected to grow 14.5% for 2021. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Avid Bioservices, Inc.
: Based in Tustin, CA, Avid is a contract development and manufacturing organization. This Zacks Rank #2 company has gained 68.8% year to date against its
’s 4.7% decline. Earnings estimates have moved up 150% over the past 30 days for the current fiscal year. Earnings for the company are expected to grow 118.5% for the current fiscal year.
Oncternal Therapeutics, Inc.
: This San Diego, CA-based clinical-stage biopharmaceutical company has gained 76.7% year to date against its
’s 7.7% decline. Loss estimates for this Zacks Rank #2 company have narrowed down to 52 cents per share from 59 cents over the past 30 days for 2021. Bottom line for the company is expected to improve 38.8% for 2021.
Amtech Systems, Inc.
: Headquartered in Tempe, AZ, this company is engaged in the manufacture of several items of capital equipment, one of which is patented, used by customers in the manufacture of semiconductors. This Zacks Rank #2 stock has gained 121.5% year to date compared with its
’s 17.4% growth. Earnings estimates have moved up to 16 cents from loss estimates of 18 cents over the past 60 days for the current fiscal year. Earnings for the company are expected to grow 157.1% for the current fiscal year.
Aytu Biopharma, Inc.
: Based in Englewood, CO, this specialty pharmaceutical company currently carries a Zacks Rank #2. This stock has gained 16.8% year to date against its
’s 4.7% decline. Loss estimates have narrowed down to $1.82 per share from $1.90 over the past 60 days for the current fiscal year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at:
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