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3 Stocks in Focus on the Power of New Analyst Coverage

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In the dynamic world of investments, the importance of new analyst coverage lies in the invaluable data it brings to the table, providing investors with essential insights for making informed decisions.

Investors often view coverage initiation as a positive indicator, interpreting it as a signal that the stock in question holds unique value. Analysts, acting as intermediaries with extensive access to relevant data, contribute significantly to the market's efficiency. This faith in analysts' research stems from the fear that a lack of information may lead to market inefficiencies.

The recent surge in analyst coverage for stocks such as Simulations Plus, Inc. (SLP - Free Report) , Centrus Energy Corp. (LEU - Free Report) and Green Brick Partners, Inc. (GRBK - Free Report) signals a wealth of opportunities for investors.

Stocks are not chosen randomly for coverage. They are rather carefully selected, reflecting a positive outlook envisioned by analysts. The ratings on newly covered stocks are often more favorable than those on continuously covered stocks, creating an environment of increased investor interest.

The impact of new analyst coverage on stock prices is substantial. Stocks typically experience an upward price movement with new analyst coverage compared to a rating upgrade under existing coverage. Positive recommendations, such as Buy and Strong Buy, tend to generate a significantly positive price reaction, while analysts rarely initiate coverage with a Strong Sell or Sell recommendation.

The strategy of betting on stocks with increased analyst coverage over the last few weeks proves effective. Investors pay closer attention to companies receiving new recommendations, making them more appealing for portfolio managers looking to build positions.

In conclusion, the recent surge in analyst coverage for stocks like SLP, LEU and GRBK underscores the importance of staying attuned to market dynamics. For investors seeking opportunities, stocks attracting new analyst coverage present a promising avenue for building a robust and informed investment portfolio.

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 the six stocks that passed the screen:

Simulations Plus: This Lancaster, CA-based company is a premier developer of groundbreaking drug discovery and development simulation software, which is licensed to and used in the conduct of drug research by major pharmaceutical and biotechnology companies worldwide. The company’s shares have gained 5.5% in the past year compared with the industry’s 52.9% rise.

SLP — a Zacks Rank #2 (Buy) company — has an expected revenue growth rate of 13.9% year over year for this year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Centrus Energy: Based in Bethesda, MD, this company supplies nuclear fuel and services for the nuclear power industry in the United States and internationally. The company’s shares have gained 35% in the past year compared with the industry’s 0.01% growth.

LEU has a Zacks Rank #3 (Hold). The EPS estimates for 2024 have increased to $2.49 from $2.35 in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 47.7%.

Green Brick Partners: This is a multifaceted company specializing in homebuilding and land development, with a presence in Texas, Georgia and Florida. Additionally, it holds a non-controlling stake in a Colorado-based homebuilder. The stock has surged 91.3% in the past year compared with the industry’s 10.4% rise.

GRBK — a Zacks Rank #3 company — has an expected EPS year-over-year growth rate of 9.5% for 2024. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missing on one occasion, the average being 33.3%.

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.

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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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