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Find Strong Stocks to Buy in May with New Analyst Coverage
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Stocks whipsawed between small declines and small gains Tuesday, in what was a welcome day of calm following a tumultuous end to April. The S&P 500 fell roughly 9% last month, for its worst showing since the initial covid lockdowns in March 2020. Meanwhile, the Nasdaq posted its largest monthly decline since October 2008, tumbling over 13%.
The Nasdaq is now in a bear market and the S&P 500 is in a correction, down around 15% from its records. The wave of selling has seen mega-cap titans such as Amazon fall by double-digits in a single trading day. Wall Street and retail investors continue to sell as they attempt to determine what impact 40-year high inflation and corresponding higher interest rates will have on the economy and corporate revenue and profits.
Many investors are likely on the sidelines and have already perhaps sold out of some stocks in 2022. There are legitimate reasons for caution and selling, and the ongoing Russian invasion and Chinese covid lockdowns could continue to put pressure on energy and oil prices and clog supply chains.
Still, it pays for long-term investors to stay exposed to the market at all times because calling a bottom is very difficult. Attempting to time the market can also see investors “buy high, and sell low.” Let’s also remember that Wall Street must put money to work in order to beat 8.5% inflation and bonds haven’t performed very well in 2022 either, and yields still remain historically low.
Investors who decide to stay on the hunt for stocks might want to utilize our new analyst coverage screen to help find potential winners in May.
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).
Here are two of the roughly 15 stocks that came through the screen today…
Joby Aviation, Inc. (JOBY - Free Report) - (from 2 analysts four weeks ago to 5)
Joby Aviation is a firm focused on a futuristic area of transportation. Joby is currently developing and manufacturing an all-electric, vertical take-off and landing aircraft. The firm aims to operate “as a commercial passenger aircraft beginning in 2024.” Joby boasts that it’s spent over a decade developing and testing its “zero-emissions aircraft that will travel 150+ miles on a single charge, enabling a pilot and four passengers to leapfrog over the congestion below at speeds of up to 200 mph.”
Joby Aviation is a pre-revenue company at the moment that has strategic partnerships with Toyota, Uber, and others. The electric air taxi maker’s earnings revisions activity is trending in the right direction. And Joby stock, which is trading for well under $10 per share and lands a Zacks Rank #2 (Buy) at the moment, grabbed more analyst attention following its fourth quarter release in late March.
Patrick Industries (PATK - Free Report) - (from 1 analysts four weeks ago to 3)
Patrick Industries is a leading component solutions provider for the RV, marine, and manufactured housing industries. PATK also services other industrial markets including single and multi-family housing, hospitality, institutional and commercial. Patrick Industries, like many others in the broader RV and consumer marine space, is in the midst of a massive run of revenue growth that began about a decade ago.
Patrick Industries expanded immensely in the aftermath of the financial crisis and posted huge growth in 2021 amid the covid spending boom. PATK topped Zacks Q1 fiscal 2022 estimates at the end of April and its consensus earnings estimates for FY22 and FY23 popped since then. Patrick Industries also pays a dividend and it’s expected to grow its adjusted earnings and revenue by double digits again this year.
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.
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.
Image: Bigstock
Find Strong Stocks to Buy in May with New Analyst Coverage
Stocks whipsawed between small declines and small gains Tuesday, in what was a welcome day of calm following a tumultuous end to April. The S&P 500 fell roughly 9% last month, for its worst showing since the initial covid lockdowns in March 2020. Meanwhile, the Nasdaq posted its largest monthly decline since October 2008, tumbling over 13%.
The Nasdaq is now in a bear market and the S&P 500 is in a correction, down around 15% from its records. The wave of selling has seen mega-cap titans such as Amazon fall by double-digits in a single trading day. Wall Street and retail investors continue to sell as they attempt to determine what impact 40-year high inflation and corresponding higher interest rates will have on the economy and corporate revenue and profits.
Many investors are likely on the sidelines and have already perhaps sold out of some stocks in 2022. There are legitimate reasons for caution and selling, and the ongoing Russian invasion and Chinese covid lockdowns could continue to put pressure on energy and oil prices and clog supply chains.
Still, it pays for long-term investors to stay exposed to the market at all times because calling a bottom is very difficult. Attempting to time the market can also see investors “buy high, and sell low.” Let’s also remember that Wall Street must put money to work in order to beat 8.5% inflation and bonds haven’t performed very well in 2022 either, and yields still remain historically low.
Investors who decide to stay on the hunt for stocks might want to utilize our new analyst coverage screen to help find potential winners in May.
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).
Here are two of the roughly 15 stocks that came through the screen today…
Joby Aviation, Inc. (JOBY - Free Report) - (from 2 analysts four weeks ago to 5)
Joby Aviation is a firm focused on a futuristic area of transportation. Joby is currently developing and manufacturing an all-electric, vertical take-off and landing aircraft. The firm aims to operate “as a commercial passenger aircraft beginning in 2024.” Joby boasts that it’s spent over a decade developing and testing its “zero-emissions aircraft that will travel 150+ miles on a single charge, enabling a pilot and four passengers to leapfrog over the congestion below at speeds of up to 200 mph.”
Joby Aviation is a pre-revenue company at the moment that has strategic partnerships with Toyota, Uber, and others. The electric air taxi maker’s earnings revisions activity is trending in the right direction. And Joby stock, which is trading for well under $10 per share and lands a Zacks Rank #2 (Buy) at the moment, grabbed more analyst attention following its fourth quarter release in late March.
Patrick Industries (PATK - Free Report) - (from 1 analysts four weeks ago to 3)
Patrick Industries is a leading component solutions provider for the RV, marine, and manufactured housing industries. PATK also services other industrial markets including single and multi-family housing, hospitality, institutional and commercial. Patrick Industries, like many others in the broader RV and consumer marine space, is in the midst of a massive run of revenue growth that began about a decade ago.
Patrick Industries expanded immensely in the aftermath of the financial crisis and posted huge growth in 2021 amid the covid spending boom. PATK topped Zacks Q1 fiscal 2022 estimates at the end of April and its consensus earnings estimates for FY22 and FY23 popped since then. Patrick Industries also pays a dividend and it’s expected to grow its adjusted earnings and revenue by double digits again this year.
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.