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5 Stocks for Solid Returns as Analysts Initiate Coverage

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New analyst coverage unearths extensive data on stocks for investors. As analysts are privy to vital information, which is crucial for investment decisions, they are much relied on as lack of information creates chances of misinterpretation (over- or under-valued).

Analysts don’t add a stock to their coverage randomly. New coverage on a stock is usually the result of huge investor focus on it or its promising prospects.

Interestingly, stocks typically see an incremental upward price movement with new analyst coverage compared to what they witness with continuation of existing analyst coverage. Of course, the price movement depends on the recommendations from the new analysts. Positive recommendations — Buy and Strong Buy — lead to a significant positive incremental price reaction than Strong Sell, Sell or Hold recommendations.

Moreover, if an analyst gives a new recommendation on a company that has limited or no analyst coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.

However, one should preferably look for the average change in broker recommendation rather than a single recommendation change. Then again, an upgrade, an initiation or even increased coverage is equally important.

Keeping this mind, it’s a good strategy to focus on the number of analyst recommendations that have increased over the last few weeks.

Below, we have selected five 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 seven stocks that passed the screen:

UFP Industries, Inc. (UFPI - Free Report) : Headquartered in Grand Rapids, MI, this company designs, manufactures, and markets wood, wood composite and other products in the retail, industrial, and construction market. Although this Zacks Rank #3 (Hold) stock has underperformed its industry in the past year, earnings estimates have moved up 14.2% over the past 30 days for 2021, depicting analyst optimism over the company’s earnings growth potential.

Cabaletta Bio, Inc. (CABA - Free Report) : Based in Philadelphia, PA, this clinical-stage biotechnology company currently carries a Zacks Rank #3. Although the stock has underperformed its industry in the past year, loss estimates have narrowed to $2.32 per share from $2.78 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alto Ingredients, Inc. : Based in Sacramento, CA, this company produces and markets low-carbon renewable fuels and alcohol products in the United States. The stock has gained 1058.9% over the past year, outperforming its industry’s 30.8% growth. This Zacks Rank #3 company’s bottom line is expected to grow 249% in 2021.

Ribbon Communications Inc. (RBBN - Free Report) : Based in Westford, MA, this company provides networked software solutions in the United States and abroad. The stock has gained 157.4% over the past year, outperforming the industry’s 46.5% growth. This Zacks Rank #3 company’s earnings are expected to grow 26.9% in 2021.

Software Acquisition Group Inc. (CURI - Free Report) : Based in Silver Spring, MD, Software Acquisition Group operates as a media and entertainment company. This Zacks Rank #3 company’s shares have risen 75.7% over the past year, outperforming the industry’s 29.8% growth. The company’s bottom line is expected to grow 64.4% in 2021.

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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