As analysts are the key information intermediaries in capital markets, initiation of coverage by them offers critical information on a stock, which is of great value to investors.
Coverage initiation by analyst(s) on a stock portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock that attracts analysts’ interest. In other words, they believe that the company coming under coverage has some value that can’t be ignored. Obviously, stocks are not randomly chosen to cover. New coverage 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 ratings on continuously covered stocks. It is worth mentioning here that the average change in broker recommendation is always preferred over a single recommendation change. New Analyst Coverage & Impact on Price Movement
The price movement of a stock is the function of the recommendations on it from new analysts. Typically, stocks see an upward price movement on new analyst coverage compared to what was 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.
Meanwhile, investors start paying more attention to the stock (that has very few or no existing coverage) on which an analyst provides a new recommendation. Also, any new information attracts portfolio managers to build a position in the stock. Below, we have selected five stocks that have seen increased analyst coverage over the past 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 also consider other relevant parameters to make it 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 17 stocks that passed the screen: Braskem S.A. ( BAK Quick Quote BAK - Free Report) : Based in Brazil, this company produces and sells thermoplastic resins. This Zacks Rank #1 (Strong Buy) stock has gained 138.6% so far this year compared with the industry’s 44.4% growth. Earnings estimates for the current year have moved up 33.3% over the past 60 days. Its earnings are expected to grow 369% in 2021. You can see . the complete list of today’s Zacks #1 Rank stocks here The Bank of N.T. Butterfield & Son Limited ( NTB Quick Quote NTB - Free Report) : Headquartered in Hamilton, Bermuda, this company offers bank and wealth management services. This Zacks Rank #2 (Buy) stock has gained 25.7% so far this year compared with the industry’s 17.7% growth. Its earnings are expected to grow 8.2% in 2021. Lantronix, Inc. ( LTRX Quick Quote LTRX - Free Report) : Based in Irvine, CA, this company provides software as a service, engineering services and hardware. This Zacks Rank #2 stock has gained 56.3% so far this year compared with the industry’s 21.6% growth. Earnings estimates for the current year have moved up 5.3% over the past 60 days. Its earnings are expected to grow 110.5% in 2021. JinkoSolar Holding Co., Ltd. ( JKS Quick Quote JKS - Free Report) : Based in Shangrao, the People's Republic of China, this company designs, develops, produces and markets photovoltaic products. This Zacks Rank #2 stock has outperformed the industry year to date. Earnings estimates for the current year have moved up 48% over the past 30 days. 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