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As analysts are the most important information intermediaries in capital markets, initiation of coverage by them creates value for companies.
It is to be borne in mind that inconsistency in information creates inefficiencies that might result in misinterpretation of stocks (over- or under-valued). Thus, initiation of coverage by analysts offers critical information on a stock which is of great value to investors.
Coverage initiation on a stock by analyst(s) usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.
Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.
However, we have noticed that the average change in broker recommendation is preferred over a single recommendation change.
Analyst Coverage & Price Movement
Interestingly, the price movement is generally a function of the recommendations from new analysts. Stocks typically see an upward price movement with a 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 limited 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).
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 13 stocks that passed the screen:
NCI Building Systems, Inc. , an integrated manufacturer of metal products for the building industry, climbed 11.5% year to date, outperforming the Zacks classified Building & Construction Products - Miscellaneous industry’s 8.5% gain. It has an expected 3–5 year earnings per share (EPS) growth rate of 10%. The Zacks Rank #2 (Buy) stock saw positive earnings estimate revision of 1 cent for this year and 3 cents for the next over the past 60 days, with an expected growth rate of a 38%.
China Lodging Group, Limited (HTHT - Free Report) , an economy hotel chain operator in China, sports a Zacks Rank #1 (Strong Buy). Estimates moved north by 22 cents over the last 60 days to $2.03 per share for the current year, with an expected growth rate of a 23.8%. The stock rallied 33.2% so far this year, outperforming the Hotels & Motels industry’s 2% dip. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Beijing, China, Weibo Corporation (WB - Free Report) operates as a social media platform for people to create, distribute and discover Chinese-language content. The stock saw positive earnings estimate revision of 3 cents for this year over the past 60 days, with an expected growth rate of a 157.3%. The stock, with a Zacks Rank #2, gained 36.4% year to date, faring much better than the Zacks Internet Content industry’s 15.1% rise.
Genco Shipping & Trading Limited (GNK - Free Report) is a ship owning company which transports iron ore, coal, grain, steel products and other drybulk cargoes. The Zacks Rank #3 (Hold) stock has rallied 62.3% so far this year, outperforming the Zacks Transportation – Shipping industry‘s 6.1% increase. The company is expected to register 94% EPS growth in the current year and 107.9% in the next.
PCTEL, Inc. designs, develops, and delivers wireless solutions. The stock jumped 45.7% year to date, outperforming the Wireless Equipment Industry’s 5.6% decline. The company posted an average positive earnings surprise of 125.00% in the trailing four quarters and has an estimated earnings growth rate of 150% for this year and 80% for the next. This Zacks Rank #1 stock has a VGM Score of “A.
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 Set to Pop on New Analyst Coverage
As analysts are the most important information intermediaries in capital markets, initiation of coverage by them creates value for companies.
It is to be borne in mind that inconsistency in information creates inefficiencies that might result in misinterpretation of stocks (over- or under-valued). Thus, initiation of coverage by analysts offers critical information on a stock which is of great value to investors.
Coverage initiation on a stock by analyst(s) usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.
Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.
However, we have noticed that the average change in broker recommendation is preferred over a single recommendation change.
Analyst Coverage & Price Movement
Interestingly, the price movement is generally a function of the recommendations from new analysts. Stocks typically see an upward price movement with a 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 limited 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).
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 13 stocks that passed the screen:
NCI Building Systems, Inc. , an integrated manufacturer of metal products for the building industry, climbed 11.5% year to date, outperforming the Zacks classified Building & Construction Products - Miscellaneous industry’s 8.5% gain. It has an expected 3–5 year earnings per share (EPS) growth rate of 10%. The Zacks Rank #2 (Buy) stock saw positive earnings estimate revision of 1 cent for this year and 3 cents for the next over the past 60 days, with an expected growth rate of a 38%.
China Lodging Group, Limited (HTHT - Free Report) , an economy hotel chain operator in China, sports a Zacks Rank #1 (Strong Buy). Estimates moved north by 22 cents over the last 60 days to $2.03 per share for the current year, with an expected growth rate of a 23.8%. The stock rallied 33.2% so far this year, outperforming the Hotels & Motels industry’s 2% dip. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Beijing, China, Weibo Corporation (WB - Free Report) operates as a social media platform for people to create, distribute and discover Chinese-language content. The stock saw positive earnings estimate revision of 3 cents for this year over the past 60 days, with an expected growth rate of a 157.3%. The stock, with a Zacks Rank #2, gained 36.4% year to date, faring much better than the Zacks Internet Content industry’s 15.1% rise.
Genco Shipping & Trading Limited (GNK - Free Report) is a ship owning company which transports iron ore, coal, grain, steel products and other drybulk cargoes. The Zacks Rank #3 (Hold) stock has rallied 62.3% so far this year, outperforming the Zacks Transportation – Shipping industry‘s 6.1% increase. The company is expected to register 94% EPS growth in the current year and 107.9% in the next.
PCTEL, Inc. designs, develops, and delivers wireless solutions. The stock jumped 45.7% year to date, outperforming the Wireless Equipment Industry’s 5.6% decline. The company posted an average positive earnings surprise of 125.00% in the trailing four quarters and has an estimated earnings growth rate of 150% for this year and 80% for the next. This Zacks Rank #1 stock has a VGM Score of “A.
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 »