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New Analysts Initiate Coverage: 5 Stocks for Higher Returns

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There’s no denying that lack of consistency in information creates inefficiencies that might trigger misinterpretation of stocks. Initiation of coverage by analysts offers critical information on a stock that is of great value to investors.

Malibu Boats, Inc. (MBUU - Free Report) , Cantaloupe, Inc. (CTLP - Free Report) , INmune Bio, Inc. (INMB - Free Report) , Swedish Match AB (publ) (SWMAY - Free Report) and GATX Corporation (GATX - Free Report) are some stocks that have seen new analyst coverage lately and are therefore expected to attract investors' attention.

Coverage initiation on a stock by analyst(s) 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 radar definitely has some value that can be tapped.

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.

Needless to say, the average change in broker recommendation is preferred over a single recommendation change. It’s always a good approach to bet on stocks that have seen increased analyst coverage over the last few weeks.

Analyst Coverage & Price Movement

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 limited 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.

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 out of the 13 stocks that passed the screen:

Malibu Boats: Based in Loudon, TN, this company designs, manufactures and sells a wide range of recreational powerboats.

MBUU currently carries a Zacks Rank #1 (Strong Buy). The stock has declined 23.6% over the past year versus the industry’s 58.6% decline. Earnings estimates for fiscal 2022 have increased 10% over the past 30 days to $7.79 per share. The estimated figure calls for a 29.6% increase from the year-ago period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cantaloupe: This is Malvern, PA-based digital payment and software services company.

CTLP currently carries a Zacks Rank #1. The stock has lost 56.7% over the past year versus the industry’s 31.6% decline. Loss estimates for this fiscal year have narrowed to 2 cents from  7 cents per share over the past 30 days. The estimated figure calls for an 85.7% improvement from the year-ago period.

INmune Bio: This is a clinical-stage immunotherapy company based in Boca Raton, FL.

INMB currently carries a Zacks Rank #2 (Buy). The stock has lost 53.3% over the past year versus the industry’s 40.6% decline. Nonetheless, loss estimates for 2022 have narrowed to $2.05 per share from $2.27 over the past 30 days.

Swedish Match AB (publ): Headquartered in Stockholm, Sweden, this company manufactures and sells snus and moist snuff, lights and other tobacco products in Scandinavia, the United States, and internationally.

SWMAY currently carries a Zacks Rank #2. The stock has gained 10.2% over the past year versus the industry’s 51.1% decline. Earnings estimates for 2022 have increased 7% over the past 30 days to 46 cents per share. The estimated figure calls for a 2.2% increase from the year-ago period.

GATX Corporation: Based in Chicago, IL, GATX operates as railcar leasing company in the United States and internationally.

GATX currently carries a Zacks Rank #2. The stock has gained 14.3% over the past year versus the industry’s 3.8% growth. Earnings estimates for 2022 have increased 2.3% over the past 30 days to $5.83 per share. The estimated figure calls for a 15.2% increase from the year-ago period.

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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