There’s no denying that the lack of accurate data creates inefficiencies that might result in misinterpretation of stocks. Initiation of coverage by analyst(s) offers critical information on a stock which is of great value to investors.

Coverage initiation 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 gives 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 eight stocks that passed the screen:

VASCO Data Security International, Inc.’s , a leading security software firm, shares have climbed 50% this year, faring much better than the industry’s 2.1% decline. This Zacks Rank #2 (Buy) stock has seen earnings estimates move up 14.3% for 2018 and 2% for 2019 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Progenics Pharmaceuticals, Inc. develops medicines and other technologies to treat cancer in the United States and internationally. The stock carries a Zacks Rank #3 (Hold) and has advanced 21.5% this year, faring much better than its industry’s 5.3% fall. Loss estimates for 2018 have narrowed to 59 cents per share from 72 cents over the last 30 days.

Denny's Corporation (DENN Quick QuoteDENN - Free Report) is one of the largest restaurant companies. Shares of the company, carrying a Zacks Rank #3, have gained more than 11.8% so far this year, comparing favorably with the industry’s 1.7% decline. The Zacks Consensus Estimate for earnings has moved 14% up for 2018 and 12.9% for 2019 over the past 30 days.

Columbus McKinnon Corporation (CMCO Quick QuoteCMCO - Free Report) is a broad-line designer, manufacturer and supplier of sophisticated material handling products and integrated material handling solutions. Shares of the company, carrying a Zacks Rank #3, have outperformed its industry year to date. Fiscal 2019 earnings for the company are expected to grow 24.8%.

Equity Commonwealth (EQC Quick QuoteEQC - Free Report) is a Chicago-based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties throughout the United States. Shares of this Zacks Rank #3 company have outperformed the industry so far this year. Earnings estimates have moved 7.8% north for 2018 and 7.9% for 2019 in the last 30 days, depicting the stock’s potential to scale higher.

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.

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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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance

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