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Top 5 Stocks to Buy as New Analysts Initiate Coverage

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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 extensive access to relevant data.

Beazer Homes USA, Inc. (BZH - Free Report) , AdvanSix Inc. (ASIX - Free Report) , BM Technologies, Inc. (BMTX - Free Report) , First BanCorp. (FBP - Free Report) and Walker & Dunlop, Inc. (WD - Free Report) are some stocks, which have seen new analyst coverage lately, and therefore are expected to attract investors' attention.

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 that attracts 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 they witness 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 coverage.

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 five of the 10 stocks that passed the screen:

Beazer Homes: This Atlanta-based homebuilder continues to gain from strong operational execution and persistent strength in the housing market.

Beazer Homes currently sports a Zacks Rank #1 (Strong Buy). The stock has gained 46.5% year to date (YTD), faring better than the industry’s 29.6% rally. Earnings are expected to grow 23.7% in fiscal 2022. You can see the complete list of today’s Zacks #1 Rank stocks here.

AdvanSix: Based in Parsippany, NJ, this company makes and sells polymer resins in the United States and internationally.

AdvanSix currently sports a Zacks Rank #1. The stock has gained 121.7% YTD, faring better than the industry’s 1.5% rally. Earnings estimates for the current year have moved up 0.4% over the past 30 days. Earnings are expected to grow 197% in 2021.

BM Technologies: This Wayne, PA-based company provides digital banking and disbursement services to consumers and students in the United States.

BM Technologies currently holds a Zacks Rank #2 (Buy). Although its shares have declined 21.8% YTD, earnings estimates for the current year have moved up 82.6% over the past 30 days, depicting analysts’ optimism over the company’s prospects.

First BanCorp.: Headquartered in Santurce, Puerto Rico, FirstBanCorp. operates as the bank holding company for FirstBank Puerto Rico.

FBP currently carries a Zacks Rank #2 and has gained 46.4% YTD, faring better than the industry’s 33.6% rally. Earnings estimates for the current year have moved up 5.4% over the past 60 days. Its earnings are expected to grow 211.4% this year.

Walker & Dunlop: This Bethesda, MD-based company is engaged in providing commercial real estate financial services.

WD currently carries a Zacks Rank #2 and has gained 63.3% YTD against the industry’s 40.1% decline. Earnings estimates for the current year have moved up 3.6% over the past 30 days. Its earnings are expected to grow 4.4% this year.

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.

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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