Most investors depend on analysts’ research before taking decisions as they fear that lack of information might trigger inefficiencies. Here, analysts play a vital intermediary role with their extensive access to relevant data.
Coverage initiation of a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume there is something special in a stock to attract analysts’ attention. In other words, they believe that the company coming under the microscope definitely has some value.
Obviously, stocks are not randomly chosen to cover. New coverage on a stock 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 their 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.
Impact on Price Movement
The price movement of a stock generally depends on the recommendations on it from new analysts. Usually, 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.
Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. 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 nine stocks that passed the screen:
The ODP Corporation
: Based in Boca Raton, FL, this company provides business services and supplies, products, and technology solutions. It sports a Zacks Rank #1 (Strong Buy). The stock has outperformed its
over the past six months. Earnings for the current year are expected to increase 11%. Its earnings estimates for 2020 have climbed 31.1% to $4.55 per share over the past 30 days. You can see
the complete list of today’s Zacks #1 Rank stocks here
Myers Industries, Inc.
: Headquartered in Akron, OH, this company manufactures and sells polymer products. The stock currently carries a Zacks Rank #2 (Buy). It has gained 32.3% over the past six months, outperforming its
’s 3.1% rise. Its earnings estimates for 2020 have climbed 30% to 91 cents per share over the past 30 days. Earnings for the current year are expected to increase 16.7%.
Catalyst Biosciences, Inc.
: Headquartered in South San Francisco, CA, this clinical-stage biopharmaceutical company currently carries a Zacks Rank #2. The stock has gained 12.9% over the past three months against its
’s 1.7% decline. Loss estimates have narrowed to $2.69 per share from $3.10 over the past 30 days. The bottom line for the current year is expected to increase 41.5%.
: Based in Andover, MA, this company designs, develops, manufactures, and markets modular power components and power systems for converting electrical power. This Zacks Rank #3 (Hold) stock has gained 41.8% over the past six months compared with its
’s 29.8% rise. Its earnings estimates for 2020 have climbed 26.9% to 33 cents per share over the past 30 days. Earnings for 2021 are expected to increase 215.2%.
: Headquartered in Providence, Rhode Island, this company owns and operates gaming and racing facilities in the United States. This Zacks Rank #3 stock has gained 129.7% over the past six months compared with its
’s 30% jump. Loss estimates for 2020 have narrowed to 52 cents per share from $1.00 over the past 30 days. The bottom line for 2021 is expected to increase 411.5%.
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:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report