The S&P 500 and the Dow notched records to end last week, with the tech-heavy Nasdaq setting highs Thursday. Both the blue-chip and the benchmark touched new heights again in morning trading Tuesday, while the Nasdaq, which began higher, slipped by mid-morning.

Wall Street remains focused on the second quarter earnings season, with reports from Disney, Tyson Foods, eBay, Airbnb, and countless others all out during the week of August 9. After that, we get reports from huge retailer like Walmart. The broader S&P 500 earnings season has been stellar so far and the outlook continues to improve (also read: The 3 Most Notable Features of Q2 Earnings Season).

Along with earnings positivity, July’s jobs report came in strong. U.S. employers added 943K jobs last month to easily beat expectations and mark the biggest gain since August 2020. Meanwhile, the unemployment rate fell from 5.9% in June to 5.4%. That put the jobless rate at its lowest levels since the very early days of the pandemic in March 2020.

We also saw Goldman Sachs last week lift its 2021 target for the S&P to 4700, up from 4300, which currently implies roughly 6% upside for the remainder of the year. The Wall Street titan also raised its 2022 target and noted that the interest rate environment continues to favor stocks.

There could be more near-term selling with the market once again at new highs. But the longer-term bullish case remains despite Delta coronavirus variant worries, economic slowdown concerns, and rising prices—barring any major restrictions or new lockdowns.

With this in mind, investors likely want to hunt for strong stocks to add in August and beyond. One way to find potential winners is to search for companies that have landed new analyst coverage recently…

New Analyst Coverage

Broker recommendations play their part no matter how investors feel about them. And we seemingly all take a look no matter what. Individual investors, large institutional portfolio managers, and everyone in between are likely pleased to see one of their stocks get an upgraded rating or a new analyst cover the company.

Investor interest can generate more analyst coverage. This helps explain why analysts jump on young, much-hyped and talked about tech companies. Then, as new coverage is initiated, the company and the stock become more visible, which in turn often leads to more demand potential and therefore the possibility of higher prices. 

Plus, analysts almost always initiate coverage with a positive recommendation. And the logic follows because why spend all the time and write a research report on a company not widely tracked only to say it’s not good?

When it comes to companies with little to no analyst coverage, one new recommendation can sometimes give portfolio managers the validation they need to build a position. And the more money they can invest, the more they can potentially influence prices.

The best way to use this information is to search for companies with analyst coverage that has increased over the last 4 weeks. We just look at the number of analyst recommendations today and compare it to the number of analyst recommendations 4 weeks ago.

The rule of thumb here is that an increase in coverage leans bullish and a decrease signals bearish behavior. It is also worth pointing out that, in general, the change in the average broker recommendation is a better indicator than the actual recommendation itself.

On top of that, it is typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (As the number of analysts climbs the addition of new coverage isn’t earth-shattering.) In the end, increased coverage is still better than decreased coverage, unless the coverage is heading in the wrong direction. 

Now let’s try this screen…

• Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago

(This shows stocks where new coverage has recently been added.)

• Average Broker Rating less than Average Broker Rating four weeks ago

(By 'less than', we mean 'better than' four weeks ago.)

• Prices greater than or equal to 5

(We’re applying all of the above parameters to stocks above $5 a share since many money managers won't even look at stocks under $5)

• Average Daily Volume greater than or equal to 100,000 shares

(If there's not enough volume, even individual investors won't want it).

Here are three of the roughly 15 stocks that came through the screen this week…

Arbor Realty Trust, Inc. (ABR Quick QuoteABR - Free Report) - (from 2 analysts four weeks ago to 3)

DT Midstream, Inc. (DTM Quick QuoteDTM - Free Report) - (from 2 analysts four weeks ago to 4)

Agrify Corporation (AGFY Quick QuoteAGFY - Free Report) - (from 2 analysts four weeks ago to 3)

Many screeners won't let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. But you can with the Research Wizard. And you can backtest it all. Find out how to pick the right stocks right now by taking a free trial to the Research Wizard stock picking and backtesting program.

Click here to sign up for a free trial to the Research Wizard today.

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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.

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