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New analyst coverage provides extensive data on stocks for investors. Analysts are privy to vital information which is crucial for investment decisions. Lack of information creates chances of misinterpretation of stocks (over- or under-valued).
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.
Obviously, stocks are not randomly chosen to cover. 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 ratings on stocks under continuous coverage.
Needless to say, the average change in broker recommendation is preferred over a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it 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 more 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 limited 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).
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 11 stocks that passed the screen:
Stoneridge, Inc. (SRI - Free Report) is an independent designer and manufacturer of highly engineered electrical and electronic components. The stock carries a Zacks Rank #1 (Strong Buy) and has rallied more than 61% in the last six months, much above the industry’s 18.6%. The Zacks Consensus Estimates for earnings of the company has moved 13.3% up for 2018 and 30.9% for 2019 over the past 30 days, depicting the stock’s potential to scale higher. Full-year 2018 and 2019 earnings for the company are expected to grow 24.8% and 10.5%, respectively.
FGL Holdings (FG - Free Report) , an insurance company in the United States, flaunts a Zacks Rank of 1. Although shares of FGL have slightly underperformed its industry in the past year, earnings estimates for 2018 and 2019 have been trending upward over the last seven days, increasing 13.8% and 14%, respectively.
Lindblad Expeditions Holdings, Inc. (LIND - Free Report) , an expedition travel company, has an expected earnings growth rate of 44.4% for 2018 and 65.4% for 2019. The stock carries a Zacks Rank #3 (Hold) and has rallied more than 16% in the last year, comparing favorably with the industry’s 9.6% gain. You can see the complete list of today’s Zacks #1 Rank stocks here.
Endocyte, Inc. , a biopharmaceutical company, has rallied more than 249% in the past year, breezing past the industry’s 5.8% gain. Loss estimates for 2018 and 2019 have narrowed down to 87 cents per share and 84 cents from 96 cents and 91 cents, respectively, over the last 30 days. The company has a Zacks Rank #3.
Knoll, Inc. ), a leading designer and manufacturer of branded office furniture products and textiles, has an expected earnings growth rate of 26.1% for 2018, higher than the industry’s 7.7%. For 2019, earnings are expected to grow 13.2%. This stock has seen earnings estimates move up 4.8% for 2018 and 3.7% for 2019 over 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.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
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New Analyst Coverage Puts Spotlight on 5 Stocks
New analyst coverage provides extensive data on stocks for investors. Analysts are privy to vital information which is crucial for investment decisions. Lack of information creates chances of misinterpretation of stocks (over- or under-valued).
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.
Obviously, stocks are not randomly chosen to cover. 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 ratings on stocks under continuous coverage.
Needless to say, the average change in broker recommendation is preferred over a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it 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 more 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 limited 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).
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 11 stocks that passed the screen:
Stoneridge, Inc. (SRI - Free Report) is an independent designer and manufacturer of highly engineered electrical and electronic components. The stock carries a Zacks Rank #1 (Strong Buy) and has rallied more than 61% in the last six months, much above the industry’s 18.6%. The Zacks Consensus Estimates for earnings of the company has moved 13.3% up for 2018 and 30.9% for 2019 over the past 30 days, depicting the stock’s potential to scale higher. Full-year 2018 and 2019 earnings for the company are expected to grow 24.8% and 10.5%, respectively.
FGL Holdings (FG - Free Report) , an insurance company in the United States, flaunts a Zacks Rank of 1. Although shares of FGL have slightly underperformed its industry in the past year, earnings estimates for 2018 and 2019 have been trending upward over the last seven days, increasing 13.8% and 14%, respectively.
Lindblad Expeditions Holdings, Inc. (LIND - Free Report) , an expedition travel company, has an expected earnings growth rate of 44.4% for 2018 and 65.4% for 2019. The stock carries a Zacks Rank #3 (Hold) and has rallied more than 16% in the last year, comparing favorably with the industry’s 9.6% gain. You can see the complete list of today’s Zacks #1 Rank stocks here.
Endocyte, Inc. , a biopharmaceutical company, has rallied more than 249% in the past year, breezing past the industry’s 5.8% gain. Loss estimates for 2018 and 2019 have narrowed down to 87 cents per share and 84 cents from 96 cents and 91 cents, respectively, over the last 30 days. The company has a Zacks Rank #3.
Knoll, Inc. ), a leading designer and manufacturer of branded office furniture products and textiles, has an expected earnings growth rate of 26.1% for 2018, higher than the industry’s 7.7%. For 2019, earnings are expected to grow 13.2%. This stock has seen earnings estimates move up 4.8% for 2018 and 3.7% for 2019 over 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
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »