2 Stocks in Focus as Analysts Initiate Coverage
Coverage initiation on a stock by analyst(s) is critical for making investment decisions. 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.
Harrow Health, Inc. HROW and Disc Medicine Opco Inc IRON are two stocks that have witnessed new analyst coverage lately. These are, therefore, expected to attract investor attention.
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 a company coming under the radar definitely has some value, which can be tapped. At times, increased investor focus on a stock encourages analysts to take a closer look.
Then again, an 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 two 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 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 two stocks that passed the screen:
Harrow Health: Headquartered in Nashville, TN, this eyecare pharmaceutical company remains engaged in the discovery, development and commercialization of ophthalmic therapies.
HROW has gained 103.2% over the past six months, outperforming the industry’s 13.7% decline. Earnings estimates for 2023 have increased to 31 cents per share from 14 cents per share over the past 30 days. This depicts analysts’ optimism over the company’s prospects. Earnings for 2023 are expected to grow 520% from 2022. HROW currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Disc Medicine Opco: Based in Watertown, MA, this clinical-stage biotechnology company is engaged in the discovery, development and commercialization of novel treatments for patients suffering from serious hematologic diseases.
IRON currently carries a Zacks Rank #2 (Buy). The stock has gained 76.1% over the past six months, outperforming the industry’s 4.4% decline. Loss estimates for 2023 have narrowed to $2.82 per share from $3.11 per share over the past seven days. The stock has a VGM score of B.
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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.
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Harrow Health, Inc. (HROW) : Free Stock Analysis Report
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