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New Analysts Initiate Coverage: Top 5 Stocks to Buy

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New analyst coverage unearths extensive data on stocks for investors. Analysts are privy to vital information that is crucial for making investment decisions. Hence, they are much relied on, as the lack of information creates chances of misinterpretation (over- or under-valued).

CarParts.com, Inc. (PRTS - Free Report) , TravelCenters of America Inc. (TA - Free Report) , Clearfield, Inc. (CLFD - Free Report) , Apollo Commercial Real Estate Finance, Inc. (ARI - Free Report) and Ladder Capital Corp (LADR - 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 promising prospects.

Interestingly, stocks typically see an incremental upward price movement with new analyst coverage compared to what they witness with the continuation of existing analyst coverage. Of course, the price movement depends on recommendations from new analysts. Positive recommendations — Buy and Strong Buy — lead to a significant positive incremental price reaction than Strong Sell, Sell or Hold recommendations.

If an analyst gives 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.

One should preferably look for the average change in broker recommendation rather than a single recommendation change. Then again, an upgrade, 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 past 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 10 stocks that passed the screen:

CarParts.com: Based in Torrance, CA, CarParts operates as an online provider of aftermarket auto parts and accessories.

PRTS currently carries a Zacks Rank #1 (Strong Buy). The stock has risen 12% over the past month, outperforming the industry’s 3.6% rise. Loss estimates for 2023 have narrowed to 5 cents per share from 12 cents per share over the past 30 days, depicting analysts’ optimism about the company’s prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

TravelCenters of America: Based in Westlake, OH, TravelCenters of America operates travel centers, truck service facilities and restaurants.

TA currently carries a Zacks Rank #1. The stock has lost 2.9% year to date versus the industry’s 19.4% growth. That said, earnings estimates for 2023 have increased to $4.67 per share from $4.10 per share over the past 30 days, depicting analysts’ optimism about the company’s prospects.

Clearfield: Headquartered in Minneapolis, MN, Clearfield designs and manufactures the FieldSmart fiber management platform, which includes its latest generation Fiber Distribution System and Fiber Scalability Center.

CLFD currently carries a Zacks Rank #1. The stock has gained 46.8% year to date compared with the industry’s 28.4% growth. Earnings estimates for fiscal 2023 have increased to $4.95 per share from $3.60 per share over the past 30 days. The estimated figure calls for 39.4% growth from the year-ago period.

Apollo Commercial Real Estate Finance: Based in New York, this company operates as a real estate investment trust focused on investing in, acquiring and managing senior performing commercial real estate mortgage loans, commercial mortgage-backed securities, commercial real estate corporate debt and loans, and other real estate debt investments.

ARI currently carries a Zacks Rank #2 (Buy). The stock has gained 3.2% over the past three months against the industry’s 13.3% decline. Earnings estimates for 2023 are expected to witness 4.1% year-over-year growth.

Ladder Capital: Ladder Capital is a New York, NY-based commercial real estate finance company.

LADR stock currently carries a Zacks Rank #2. The stock has lost 8.4% year to date compared with the industry’s 32.1% decline. Earnings estimates for 2023 have increased to $1.18 from $1.15 per share over the past 30 days. The estimated figure calls for 4.4% growth 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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