Coverage initiation on a stock by analyst(s) helps in making investment decisions. This is because analysts provide key information on a stock, which is of great value to investors. There’s no denying that the lack of consistency in information creates inefficiencies that might result in misinterpretation of stocks.
Initiation of coverage by analysts 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. At times, increased investor focus on a stock encourages analysts to take a closer look. Then again, average change in broker recommendation is always preferred over a single recommendation change. Impact on Price Movement The price movement of a stock generally depends on the recommendations on it from new analysts. Usually, stocks see an upward price movement on new analyst coverage compared to what was witnessed 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 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. Below, we have selected four 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 two of the three stocks that passed the screen: Aeglea BioTherapeutics, Inc. ( AGLE Quick Quote AGLE - Free Report) : This Austin, TX-based clinical-stage biotechnology company currently has a Zacks Rank #2 (Buy). The stock has gained 29.5% over the past three months, outperforming the industry’s 7% growth. It has an expected earnings growth rate of 30.2% for 2020. You can see the complete list of today’s Zacks #1 Rank stocks here. Passage Bio, Inc. ( PASG Quick Quote PASG - Free Report) : This is a Philadelphia, PA-based genetic medicines company. This Zacks Rank #3 (Hold) company has gained 16.2% over the past three months, outperforming the industry’s 7% growth. It has an expected earnings growth rate of 16.4% for 2021. 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