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3 Stocks for Higher Return as New Analysts Initiate Coverage

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Investors benefit greatly from new analyst coverage, as it provides extensive data on stocks, enabling them to make informed investment decisions. Analysts have access to vital information that is crucial for investors, and their insights are highly valued, as the lack of such information can lead to misinterpretation and potentially over- or under-valued stocks.

Recently, a number of stocks, including Southside Bancshares, Inc. (SBSI - Free Report) , Beazer Homes USA, Inc. (BZH - Free Report) and Seadrill Limited (SDRL - Free Report) , have garnered the attention of analysts, indicating potential value and growth for investors.

The decision to add a stock to their coverage is not random for analysts. Usually, new coverage on a stock is a response to significant investor interest or promising prospects associated with that stock.

A noteworthy observation is that stocks tend to experience gradual upward price movements when they receive new analyst coverage compared with the price changes seen with existing analyst coverage. The extent of this price movement is influenced by the recommendations of the new analysts. Positive recommendations like "Buy" and "Strong Buy" result in a more substantial positive price reaction than "Strong Sell," "Sell," or "Hold" recommendations.

When an analyst provides a new recommendation for a company with limited or no prior analyst coverage, investors pay more attention to the stock. Additionally, any fresh information attracts portfolio managers, who may decide to build a position in the stock.

Instead of focusing on a single recommendation change, it is advisable to consider the average change in broker recommendations. Upgrades, initiations and increased coverage by multiple analysts carry equal significance in assessing a stock's potential.

To formulate a prudent strategy, it is worthwhile to concentrate on the number of analyst recommendations that have increased in recent weeks. This approach can provide valuable insights into the overall sentiment and potential trajectory of a 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 the volume isn’t enough, it will not attract individual investors).

Here are three out of six stocks that passed the screen:

Southside Bancshares: Based in Tyler, TX, SBSI operates as the bank holding company for Southside Bank. The company’s shares have lost 7.7% year to date (YTD), comparing favorably with the industry’s 18.5% decrease.

Southside Bancshares’ earnings estimates for 2023 have increased to $2.99 per share from $2.84 over the past seven days. This depicts analysts’ optimism about the company. The company’s earnings topped the consensus mark in three of the last four quarters and missed on another occasion, the average being 2.6%. Currently, Southside Bancshares sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA: This homebuilder, headquartered in Atlanta, GA, specializes in the design, construction and sale of single-family and multi-family residences. BZH offers a variety of housing options under the names Beazer Homes, Gatherings and Choice Plans. The company’s shares have gained 177.7% YTD, outperforming the industry’s 52.3% growth.

BZH’s earnings estimates for 2023 have been unchanged but the same for 2024 has increased to $4.46 per share from $4.25 over the past 60 days. BZH’s earnings topped the consensus mark in the last four quarters, the average being 29.8%. Currently, Beazer Homes sports a Zacks Rank #1.

Seadrill: Based in Hamilton, Bermuda, Seadrill provides offshore contract drilling services to the oil and gas industry worldwide. The company’s shares have gained 42.8% YTD, outperforming the industry’s 25% growth.

SDRL currently carries a Zacks Rank #3 (Hold). The company’s earnings estimates for 2023 have increased to $2.93 per share from $1.75 over the past 60 days. Seadrill’s earnings surpassed the consensus mark by 50.9% in the last reported quarter.

You can sign 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.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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:

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Seadrill Limited (SDRL) - free report >>

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