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Analysts Initiate Coverage: 5 Stocks to Buy for Higher Returns

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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).

Professional Holding Corp. (PFHD - Free Report) , Trinity Capital Inc. (TRIN - Free Report) , SunOpta Inc. (STKL - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Proto Labs, Inc. (PRLB - Free Report) are some stocks that have seen new analyst coverage lately. These, therefore, are expected to attract investor attention.

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 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 huge incremental price reaction than Strong Sell, Sell or Hold recommendations.

Moreover, if an analyst provides 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 in 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 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 17 stocks that passed the screen:

Professional Holding: Based in Coral Gables, FL, Professional Holding is the financial holding company for Professional Bank, a state-chartered bank.

PFHD currently carries a Zacks Rank #1 (Strong Buy). The stock has gained 59.7% year to date (YTD), outperforming the industry’s 0.1% gain. Earnings estimates for 2022 have increased to $1.96 per share from $1.65 over the past 30 days. The estimated figure calls for a 27.3% increase from the year-ago period.

Trinity Capital: Based in Phoenix, AZ, Trinity Capital is a leading provider of financing solutions to growth-stage companies.

The TRIN stock has lost 12.7% YTD compared with the industry’s 6.2% drop. That said, earnings estimates for 2022 have increased to $2.08 from $2.02 per share over the past 30 days, depicting analysts’ optismim over the stock’s prospects. The estimated figure calls for a 43.5% increase from the year-ago period. TRIN currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SunOpta: Based in Eden Prairie, MN, this company is an operator of high-growth ethical businesses, focusing on integrated business models in the natural and organic food, supplements and health and beauty markets.

The STKL stock currently carries a Zacks Rank #2. The stock has gained 50.1% YTD, outperforming the industry’s 2.3% rise. Earnings estimates for 2022 have increased to 6 cents per share from 3 cents over the past 30 days. The estimated figure calls for a 500% increase from the year-ago period.

Arcos Dorados Holdings: This Montevideo, Uruguay-based company operates as a franchisee of McDonald's restaurants.

ARCO currently carries a Zacks Rank #2. The stock has gained 25.9% YTD, outperforming the industry’s 10.2% drop. Earnings estimates for 2022 have increased to 49 cents per share from 43 cents over the past 30 days.  The estimated figure calls for a 104.2% improvement from the year-ago period.

Proto Labs: Based in Maple Plain, MN, this company operates as an e-commerce-driven digital manufacturer of custom prototypes and on-demand production parts.

PRLB currently carries a Zacks Rank #2. The stock has dropped 11.7% YTD compared with the industry’s 22.4% decline. Earnings estimates for 2022 have increased to $1.63 from $1.55 over the past month. The estimated figure calls for a 5.2% improvement 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

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