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Coverage initiation on a stock by analyst(s) helps in interpreting information pertaining to capital markets, creating value for investors. Lack of information creates inefficiencies that might trigger misinterpretation of stocks (over- or under-valued).
In fact, 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 microscope definitely has some value.
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.
Notably, the average change in broker recommendation is preferred over a single recommendation change.
Influence on Stock Price
It is interesting to note that the price impact of analyst initiation depends on the initial recommendation. Positive recommendations — Buy and Strong Buy — generally lead to a significantly positive price reaction in comparison to Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation. Meanwhile, stocks typically see an upward price movement with a new analyst coverage compared to what is witnessed with a rating upgrade under an existing coverage.
Now, if an analyst gives 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.
So, it’s a good strategy to bet on stocks that have seen increased analyst.
Below, we have selected four 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 four of the five stocks that passed the screen:
Progress Software Corporation (PRGS - Free Report) : Based in in Bedford, MA, this Zacks Rank #1 (Strong Buy) company develops business applications. The company’s shares have gained 16.7% compared with the industry’s 50.7% rise over the past six months. Although shares have underperformed its industry during the period, its earnings estimates for 2020 have climbed to $2.96 per share from $2.86 over the past 30 days, depicting analysts’ optimism over the company’s earnings growth potential. The company’s earnings are expected to grow 10% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Griffon Corporation (GFF - Free Report) : Headquartered in New York, NY, this diversified management and holding company conducting business through its affiliates currently sports a Zacks Rank #1. The company has gained 104.4% in the past six months compared with its industry’s 48.1% rise. Its earnings estimates for 2020 have climbed 4.6% to $1.59 per share over the past seven days. The company’s earnings for 2020 are expected to grow 47.2%.
Cornerstone Building Brands, Inc. : Headquartered in Cary, NC, this company is the manufacturer of exterior building products, primarily in North America. Shares of the company, which currently holds a Zacks Rank #2 (Buy), have gained 163.4% in the past six months, compared with its industry’s 74.3% rise. Loss estimates for 2020 have narrowed down to 45 cents per share from $1.42 per share over the past 60 days. The company’s earnings for 2021 are expected to grow 175.6%.
TravelCenters of America Inc. : Based in Westlake, OH, this company operates travel centers and standalone restaurants in the United States and Canada. This company currently carries a Zacks Rank #3 (Hold). The stock has gained 161.4% over the past six months, compared with its industry’s 42% rally. The company’s earnings for 2021 are expected to grow 329.4%.
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.
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4 Stocks in Focus on New Analysts Coverage
Coverage initiation on a stock by analyst(s) helps in interpreting information pertaining to capital markets, creating value for investors. Lack of information creates inefficiencies that might trigger misinterpretation of stocks (over- or under-valued).
In fact, 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 microscope definitely has some value.
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.
Notably, the average change in broker recommendation is preferred over a single recommendation change.
Influence on Stock Price
It is interesting to note that the price impact of analyst initiation depends on the initial recommendation. Positive recommendations — Buy and Strong Buy — generally lead to a significantly positive price reaction in comparison to Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation. Meanwhile, stocks typically see an upward price movement with a new analyst coverage compared to what is witnessed with a rating upgrade under an existing coverage.
Now, if an analyst gives 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.
So, it’s a good strategy to bet on stocks that have seen increased analyst.
Below, we have selected four 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 four of the five stocks that passed the screen:
Progress Software Corporation (PRGS - Free Report) : Based in in Bedford, MA, this Zacks Rank #1 (Strong Buy) company develops business applications. The company’s shares have gained 16.7% compared with the industry’s 50.7% rise over the past six months. Although shares have underperformed its industry during the period, its earnings estimates for 2020 have climbed to $2.96 per share from $2.86 over the past 30 days, depicting analysts’ optimism over the company’s earnings growth potential. The company’s earnings are expected to grow 10% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Griffon Corporation (GFF - Free Report) : Headquartered in New York, NY, this diversified management and holding company conducting business through its affiliates currently sports a Zacks Rank #1. The company has gained 104.4% in the past six months compared with its industry’s 48.1% rise. Its earnings estimates for 2020 have climbed 4.6% to $1.59 per share over the past seven days. The company’s earnings for 2020 are expected to grow 47.2%.
Cornerstone Building Brands, Inc. : Headquartered in Cary, NC, this company is the manufacturer of exterior building products, primarily in North America. Shares of the company, which currently holds a Zacks Rank #2 (Buy), have gained 163.4% in the past six months, compared with its industry’s 74.3% rise. Loss estimates for 2020 have narrowed down to 45 cents per share from $1.42 per share over the past 60 days. The company’s earnings for 2021 are expected to grow 175.6%.
TravelCenters of America Inc. : Based in Westlake, OH, this company operates travel centers and standalone restaurants in the United States and Canada. This company currently carries a Zacks Rank #3 (Hold). The stock has gained 161.4% over the past six months, compared with its industry’s 42% rally. The company’s earnings for 2021 are expected to grow 329.4%.
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