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Do analysts create value for companies by initiating coverage? Coverage initiation on a stock by analyst(s) is actually a sign of increased investor keenness.
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.
Why do analysts initiate coverage? Of course, stocks are not randomly picked to cover. A new coverage on a stock is usually the result of a promising 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?
Interestingly, stocks typically see an upward price movement with a new analyst coverage compared to what they witness with a rating upgrade under existing coverage. The price movement is a function of the recommendations from new analysts. Positive recommendations – Buy and Strong Buy – generally lead to a significant positive price reaction than Hold recommendations. In this regard, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
However, one should also look for the average change in broker recommendation rather than a single recommendation change.
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.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
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).
The number of 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 three stocks that passed the screen:
United Bankshares, Inc. (UBSI - Free Report) , a bank holding company, holds a Zacks Rank #2 (Buy) and a dividend yield of 3.02%, compared with the industry average of 1.03%. It carries a momentum style score ‘A’. Also, estimates for current year earnings moved north by 1.5% over the last 60 days. The stock gained over 13% in the last six months. Its expected EPS growth rate for 3–5 years is pegged at 15%.
JELD-WEN Holding, Inc. (JELD - Free Report) manufactures doors and windows, primarily in North America, Europe and Australia. Since its inception in Jan 2017, the stock gained almost 8%, outperforming the broader construction sector’s increase of 0.4%. Estimates moved 60.2% higher for current year earnings and 17.3% for the next over the last 30 days.
Steelcase Inc. (SCS - Free Report) is a producer and seller of an integrated portfolio of furniture settings, user-centered technologies and interior architectural products. The company currently has a Zacks Rank #3 and a VGM score of ‘A’. The stock climbed 14.5% in the last six months, comparing favorably with the broader Zacks categorized Business Service sector’s 3.7% gain.
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.
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3 Stocks in Limelight on New Analyst Coverage
Do analysts create value for companies by initiating coverage? Coverage initiation on a stock by analyst(s) is actually a sign of increased investor keenness.
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.
Why do analysts initiate coverage? Of course, stocks are not randomly picked to cover. A new coverage on a stock is usually the result of a promising 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?
Interestingly, stocks typically see an upward price movement with a new analyst coverage compared to what they witness with a rating upgrade under existing coverage. The price movement is a function of the recommendations from new analysts. Positive recommendations – Buy and Strong Buy – generally lead to a significant positive price reaction than Hold recommendations. In this regard, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
However, one should also look for the average change in broker recommendation rather than a single recommendation change.
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.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
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).
The number of 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 three stocks that passed the screen:
United Bankshares, Inc. (UBSI - Free Report) , a bank holding company, holds a Zacks Rank #2 (Buy) and a dividend yield of 3.02%, compared with the industry average of 1.03%. It carries a momentum style score ‘A’. Also, estimates for current year earnings moved north by 1.5% over the last 60 days. The stock gained over 13% in the last six months. Its expected EPS growth rate for 3–5 years is pegged at 15%.
JELD-WEN Holding, Inc. (JELD - Free Report) manufactures doors and windows, primarily in North America, Europe and Australia. Since its inception in Jan 2017, the stock gained almost 8%, outperforming the broader construction sector’s increase of 0.4%. Estimates moved 60.2% higher for current year earnings and 17.3% for the next over the last 30 days.
The stock carries a Zacks Rank #3 (Hold) and its expected EPS growth rate for 3–5 years is at 9%. The stock carries a VGM score of ‘B’. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Steelcase Inc. (SCS - Free Report) is a producer and seller of an integrated portfolio of furniture settings, user-centered technologies and interior architectural products. The company currently has a Zacks Rank #3 and a VGM score of ‘A’. The stock climbed 14.5% in the last six months, comparing favorably with the broader Zacks categorized Business Service sector’s 3.7% gain.
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.
Click here to sign up for a free trial to the Research Wizard today.
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: https://www.zacks.com/performance
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »