Many investors have immense faith in research work by analysts as they fear that lack of information while exploring on their own might trigger errors. Here, analysts play a vital intermediary role with their extensive access to relevant data.
Coverage initiation of a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that the company coming under the microscope definitely has some value. Obviously, stocks are not randomly chosen to cover. New coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investors’ focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t love to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks. It is needless to say, the average change in broker recommendation is more preferable than a single recommendation change. How Does Analyst Coverage Influence Stock Price?
The price movement of a stock is generally a function of the recommendations on it from new analysts. 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. 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 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 14 stocks that passed the screen:
The ODP Corporation ( ODP Quick Quote ODP - Free Report) : Based in Boca Raton, FL, this company provides business services and supplies, products, and technology solutions. The stock has outperformed its industry over the past three months. Earnings for the current year and the next are expected to increase 11% and 25.5%, respectively. The company’s earnings estimates for 2020 have climbed 31.1% and 44.2% to $4.55 and $5.71 per share, respectively, over the past 30 days. It sports a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here CAI International, Inc. ( CAI Quick Quote CAI - Free Report) : Based in San Francisco, CA, this company operates as a transportation finance and logistics company and carries a Zacks Rank #2 (Buy). It has gained 49.3% over the past three months, outperforming its industry’s 23.6% rise. Its earnings estimates for 2020 and 2021 have climbed 10.8% and 8.5% to $3.59 and $5.00 per share, respectively, over the past 30 days. Earnings for the current year and the next are expected to increase 53.4% and 39.3%, respectively. Triton International Limited ( TRTN Quick Quote TRTN - Free Report) : Based in Hamilton, Bermuda, this company engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers. This Zacks Rank #2 stock has gained 29.5% over the past three months, outperforming its industry’s 23.6% rise. Its earnings estimates for 2020 and 2021 have climbed 7.4% and 13.6% to $4.35 and $5.85 per share, respectively, over the past 30 days. Earnings for 2021 are expected to increase 34.5%. Monarch Casino & Resort, Inc. ( MCRI Quick Quote MCRI - Free Report) : Based in Reno, NV, this company owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada. The company carries a Zacks Rank #2 and its shares have outperformed its industry over the past three months. Its earnings estimates for 2020 and 2021 have climbed 383.3% and 21.8% to $1.16 and $3.24 per share, respectively, over the past 30 days. Earnings for 2021 are expected to increase 179.3%. 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