The significance of recent analyst coverage becomes apparent through the wealth of data it reveals for investors. Analysts have access to essential information that plays a pivotal role in making informed investment decisions.
OFG Bancorp ( OFG Quick Quote OFG - Free Report) , Lamar Advertising Company ( LAMR Quick Quote LAMR - Free Report) and Landsea Homes Corporation ( LSEA Quick Quote LSEA - Free Report) are three stocks that have witnessed new analyst coverage lately. These are, therefore, expected to attract investor attention. Coverage initiation on a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that the company coming under the microscope definitely holds some value. Do analysts create value for companies by initiating coverage? Of course, they do because they play an important intermediary role with their extensive access to relevant data. Many investors have immense faith in analysts’ research as they fear that a lack of information might trigger inefficiencies. Obviously, stocks are not randomly chosen to cover. A new coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks. Needless to say, the average change in broker recommendation is preferable to a single recommendation change. Impact on Stock Price
The price movement of a stock is generally a function of the recommendations from new analysts. Stocks typically see an upward price movement with 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 compared with Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
Now, if an analyst issues a new recommendation on a company that has very little or no existing coverage, investors start paying more attention to it. Also, any further information attracts portfolio managers to build a position in the stock. So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks. Screening Criteria The 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 seven stocks that passed the screen: OFG: This San Juan, Puerto Rico-based financial holding company provides a range of banking and financial services. The company’s shares have gained 28.8% in the past year versus the industry’s 13.4% decline. OFG — a Zacks Rank #2 (Buy) company — has an expected earnings per share (EPS) year-over-year growth rate of 10.2% for 2023. The EPS estimates for 2023 and 2024 have increased to $3.79 (from $3.74) and $3.75 (from $3.74) over the past 60 days. This depicts analysts’ optimism over the company’s prospects. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 7.3%. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Lamar Advertising: Based in Baton Rouge, LA, this company functions as an outdoor advertising firm within North America, managing around 363,000 displays throughout the United States and Canada. The company provides a variety of advertising formats, including billboards, interstate logos, transit options and airport displays. It caters to the promotional needs of both local businesses and national brands. The company’s shares have gained 10.6% in the past year versus the industry’s 2.9% decline. LAMR — a Zacks Rank #2 company — has an expected EPS year-over-year growth rate of 5.1% for 2024. The EPS estimates for 2024 have increased to $7.68 (from $7.59) in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters but missed on one occasion, the average being 2.1%. Landsea Homes: Headquartered in Dallas, TX, Landsea Homes is a publicly-traded residential homebuilder specializing in the design and construction of top-tier homes and sustainable master-planned communities. The company focuses on creating exceptional living spaces in some of the most sought-after markets across the nation. The stock has surged 114.5% in the past year compared with the industry’s 17.4% rise. LSEA — a Zacks Rank #3 (Hold) company — has an expected EPS year-over-year growth rate of 35.1% for 2024. The EPS estimates for 2024 have increased to $1.54 (from $1.49) in the past 60 days. You can get the rest of the stocks on this list by signing 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. Click here to sign up for a free trial to the Research Wizard today. 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