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The importance of new analyst coverage is evident from the extensive data it unearths for investors. Analysts are privy to vital information which is a crucial factor in investment decision making.
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. 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 back something that is already in demand?
Impact of Analyst Coverage on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with new analyst coverage compared to what they witness 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 issues 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.
However, one should also look for the average change in broker recommendation rather than a single recommendation change.
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 five of the nine stocks that passed the screen:
United Bankshares, Inc. (UBSI - Free Report) , a bank holding company, carries a Zacks Rank #2 (Buy). The company has a dividend yield of 3.23%, compared with the industry average of 1.04%. It carries a momentum style score of ‘A’. Also, estimates for current year earnings moved 1.5% north over the last 60 days. The stock gained 9.4% in the last six months. Its expected EPS growth rate for 3–5 years is pegged at 15%.
TopBuild Corp. (BLD - Free Report) is the installer and distributor of insulation products to the construction industry, primarily in the U.S. This Zacks Rank #1 (Strong Buy) stock surpassed the Zacks Consensus Estimate thrice in the trailing four quarters. It has an average positive earnings surprise of 27.38%. You can see the complete list of today’s Zacks #1 Rank stocks here.
WSFS Financial Corp. (WSFS - Free Report) is a thrift holding company. The stock currently has a Zacks Rank #2. Over the last 30 days, the Zacks Consensus Estimate for the company was revised 2% upward to $2.55 per share for 2017, reflecting an expected 23.8% year over year growth. Further, its expected EPS growth rate for 3–5 years is pegged at 15%.
Fluidigm Corporation operates as a biotech tools company that creates microfluidic-based chips and instrumentation for biological research. The stock currently holds a Zacks Rank #2 and has a solid 3-5 year expected EPS growth rate of 25%. Earnings for the current year are expected to increase 34.9%.
Otter Tail Corporation (OTTR - Free Report) is involved in the electric, manufacturing and plastics business across the U.S., Canada, Mexico and Panama.
This Zacks Rank #3 stock, with a VGM Score of ‘B’, reported a positive earnings surprise of 4.36% in the trailing four quarters. The stock has returned 9.4% in the last six months, outperforming the Zacks Utility-Electric Power industry’s gain of 3.2%. Otter Tail has an attractive dividend yield of 3.40%.
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.
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 »
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5 Stocks to Buy on New Analyst Coverage
The importance of new analyst coverage is evident from the extensive data it unearths for investors. Analysts are privy to vital information which is a crucial factor in investment decision making.
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. 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 back something that is already in demand?
Impact of Analyst Coverage on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with new analyst coverage compared to what they witness 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 issues 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.
However, one should also look for the average change in broker recommendation rather than a single recommendation change.
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 five of the nine stocks that passed the screen:
United Bankshares, Inc. (UBSI - Free Report) , a bank holding company, carries a Zacks Rank #2 (Buy). The company has a dividend yield of 3.23%, compared with the industry average of 1.04%. It carries a momentum style score of ‘A’. Also, estimates for current year earnings moved 1.5% north over the last 60 days. The stock gained 9.4% in the last six months. Its expected EPS growth rate for 3–5 years is pegged at 15%.
TopBuild Corp. (BLD - Free Report) is the installer and distributor of insulation products to the construction industry, primarily in the U.S. This Zacks Rank #1 (Strong Buy) stock surpassed the Zacks Consensus Estimate thrice in the trailing four quarters. It has an average positive earnings surprise of 27.38%. You can see the complete list of today’s Zacks #1 Rank stocks here.
WSFS Financial Corp. (WSFS - Free Report) is a thrift holding company. The stock currently has a Zacks Rank #2. Over the last 30 days, the Zacks Consensus Estimate for the company was revised 2% upward to $2.55 per share for 2017, reflecting an expected 23.8% year over year growth. Further, its expected EPS growth rate for 3–5 years is pegged at 15%.
Fluidigm Corporation operates as a biotech tools company that creates microfluidic-based chips and instrumentation for biological research. The stock currently holds a Zacks Rank #2 and has a solid 3-5 year expected EPS growth rate of 25%. Earnings for the current year are expected to increase 34.9%.
Otter Tail Corporation (OTTR - Free Report) is involved in the electric, manufacturing and plastics business across the U.S., Canada, Mexico and Panama.
This Zacks Rank #3 stock, with a VGM Score of ‘B’, reported a positive earnings surprise of 4.36% in the trailing four quarters. The stock has returned 9.4% in the last six months, outperforming the Zacks Utility-Electric Power industry’s gain of 3.2%. Otter Tail has an attractive dividend yield of 3.40%.
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.
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 »