The market dropped to begin the week as Wall Street put on the breaks and took home some profits ahead of the Federal Reserve’s two-day policy meeting, which ends Wednesday. The central bank is widely expected to signal a quicker end to its bond-buying program and possibly provide some type of update regarding its plans for interest rates.
All three major indexes fell, with the Nasdaq leading the drop lower both Monday and Tuesday. The moves come after Wall Street shrugged off nearly 40-year high inflation data last Friday to push the S&P 500 up to new closing records. The benchmark remains above its 50-day moving average, while the tech-heavy index dipped back below the key technical level once again.
Wall Street will be glued on the Fed tomorrow. Many analysts are convinced the central bank’s stance and signals will be the last meaningful catalyst of 2021, and either take the market to new highs into 2022 or help send us lower until various support levels are reached.
Nonetheless, investors with longer-term outlooks of a year or more should remember that interest rates will remain accommodating for the foreseeable future, even if the Fed lifted rates tomorrow. Plus, the S&P 500 margins outlook shows impressive resilience despite rising prices. And just last week JP Morgan’s chief global markets strategist wrote to clients that: “Our view is that 2022 will be the year of a full global recovery, an end of the pandemic, and a return to normal economic and market conditions we had prior to the COVID-19 outbreak.”
Given this backdrop, let’s utilize our new analyst coverage screen to help find potentially winning stocks…
Image Source: Zacks Investment Research 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).
two of the eight stocks that came through the screen this week… Titan Machinery (- (from 2 analysts four weeks ago to 4) TITN Quick Quote TITN - Free Report)
Titan Machinery operates a leading network of full-service farm and construction equipment stores. TITN currently has over 70 locations across nine U.S. states and six European countries.
Titan sells new and used construction and farm equipment. The company also rents equipment and is focused on parts and local service support, among other offerings. Titan stock is up 60% in the last year and it has crushed our EPS estimates in the trailing four quarters.
Titan’s outlook is strong and TITN’s positive earnings revisions activity helps it land a Zacks Rank #1 (Strong Buy) right now.
National Instruments Corporation (- (from 2 analysts four weeks ago to 3) NATI Quick Quote NATI - Free Report)
National Instruments Corporation, or NI, is a producer of automated test equipment and virtual instrumentation software. Some of National Instruments offerings include the likes of FlexLogger, SystemLink and LabVIEW, which offers a graphical programming environment for test and measurement applications with extensive IP libraries, broad hardware compatibility, and a large developer community.
National Instruments, which lands a Zacks Rank #3 (Hold) at the moment, has topped our quarterly earnings estimates in the trailing four quarters. Zacks estimates call for NATI to post strong top and bottom-line growth both this year and next. National Instruments is also part of a highly-ranked Zacks industry.
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.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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 .