Coverage initiation on a stock by analyst(s) usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.

Lack of information creates inefficiencies that might result in stocks being misrepresented (over- or under-valued). Thus, initiation of coverage by analysts offers critical information on a stock which is of great value to investors.

Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.

However, the average change in broker recommendation is preferred over a single recommendation change.

Analyst Coverage & Price Movement

Interestingly, the price movement is generally a function of the recommendations from new analysts. Stocks typically see an upward price movement with a 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 than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.

Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. Also, any new 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

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).

The number of increased analyst coverage and improving average rating are the primary criteria of this strategy, but one should consider other relevant parameters to make the strategy 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 volume isn’t enough, it will not attract individual investors).

Here are five of the six stocks that passed the screen:

Anixter International Inc. is a leading global distributor of communication products used in building enterprise and service provider data, voice, and video networks. Anixter is also a leading distributor of specialty wire and cable products to original equipment manufacturers and industrial companies for maintenance and repair options.

This Zacks Rank #3 (Hold) stock rallied approximately 27% year to date and flaunts a VGM Score of A.

Headquartered in Greeley, CO, Pilgrim's Pride Corporation (PPC Quick QuotePPC - Free Report) is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. Pilgrim's Pride has been successfully expanding its business on the back of its unique product diversification strategy. Product portfolio diversification shields the company from various industry-specific headwinds.

The stock carries a Zacks Rank #3 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

John Bean Technologies Corporation (JBT Quick QuoteJBT - Free Report) is a leading global solutions provider to the food processing and air transportation industries. This Zacks Rank #1 stock surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 17.98%. The stock has climbed approximately 69.4% year to date.

CRH Medical Corp. offers healthcare services and products. This Zacks Rank #3 stock has a VGM Score of A and has surged approximately 88.1% year to date. The Zacks Consensus Estimate for full-year 2016 earnings stands at 17 cents, up 50%.

Lantheus Holdings, Inc. (LNTH Quick QuoteLNTH - Free Report) is a producer of diagnostic medical imaging agents and products for diagnosis of cardiovascular and other diseases. The company has seen strong estimate revision activity recently, including two positive revisions for current-quarter earnings and two for full-year earnings. Lantheus also has a history of outperforming estimates. The company has surpassed the Zacks Consensus Estimate by an average of 179.17% in each of the trailing four quarters.

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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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