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5 Top Stocks to Buy on New Analysts' Coverage

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Analysts' coverage initiations unearth new information on stocks that are of interest to investors. These unveil more data on the stocks on which reports are initiated, reduce information asymmetry about the same and create more demand for the companies’ common stock.

New analyst coverage reveals 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).

Napco Security Technologies, Inc. (NSSC - Free Report) , Proto Labs, Inc. (PRLB - Free Report) , Clear Secure, Inc. (YOU - Free Report) , AVEO Pharmaceuticals, Inc. (AVEO - Free Report) and Mind Medicine (MindMed) Inc. (MNMD - Free Report) are a few stocks that have witnessed 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 the volume isn’t enough, it will not attract individual investors).

Here are five out of the 14 stocks that passed the screen:

Napco Security Technologies: Based in Amityville, NY, this company engages in the development, manufacturing, and selling of electronic security products in the United States and abroad.

The NSSC stock currently carries a Zacks Rank #2 (Buy). The stock has gained 16% year to date (YTD) against the industry’s 28.8% decline. Earnings estimates for fiscal 2023 have increased to 71 cents per share from 52 cents over the past 30 days. The estimated figure calls for a 65.1% increase 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 25.7% YTD compared with the industry’s 34.6% 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.

Clear Secure: This New York, NY-based company provides a member-centric secure identity platform in the United States.

The YOU stock currently carries a Zacks Rank #2. The stock has lost 25.9% YTD, outperforming the industry’s 28.8% drop. Loss estimates for 2022 have narrowed to 5 cents per share from 17 cents over the past 30 days. The estimated figure calls for a 78.3% improvement from the year-ago period.

AVEO Pharmaceuticals: This Boston, MA-based biopharmaceutical company develops and commercializes medicines for cancer patients.

AVEO currently carries a Zacks Rank #2. The stock has gained 80.2% YTD, outperforming the industry’s 24.6% decline. Loss estimates for 2022 have narrowed to 94 cents per share from $1.06 over the past 30 days. The estimated figure calls for a 42.3% improvement from the year-ago period.

Mind Medicine (MindMed): Headquartered in New York, NY, this company is a clinical-stage psychedelic medicine biotech company.

The MNMD stock has lost 44.6% YTD compared with the industry’s 24.7% drop. That said, loss estimates for 2022 have narrowed to $2.47 per share from $2.77 over the past 30 days, depicting analysts’ optimism over the stock’s prospects. The estimated figure calls for a 28.4% increase from the year-ago period. MNMD currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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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