3 Stocks to Buy on New Analyst Coverage
New analyst coverage is crucial for investment decisions. Analysts' insights and access to crucial data make their coverage a valuable resource for investors.
Recently, a number of stocks, including Ligand Pharmaceuticals Incorporated LGND, Ambac Financial Group, Inc. AMBC and Exponent, Inc. EXPO, have garnered the attention of analysts, indicating potential value and growth for investors.
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.
Do analysts create value for companies by initiating coverage? Of course, they do because they play an important intermediary role with their extensive access to relevant data. Investors hold a strong belief in the value of analysts' research, acknowledging the risks of inefficiencies that can stem from limited information.
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 their ratings on continuously covered stocks.
Needless to say, the average change in broker recommendation is preferable to 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 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.
When an analyst provides a new recommendation for a company that has limited or no existing coverage, it captures the attention of investors, who become more interested in the stock. Additionally, the introduction of new information often entices portfolio managers to establish positions 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 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 12 stocks that passed the screen:
Ligand Pharmaceuticals: Based in San Diego, CA, this biopharmaceutical company’s shares have gained 7.8% year to date (YTD), against the industry’s 10% drop.
LGND’s earnings estimates for 2023 have increased to $5.25 per share from $4.16 over the past 60 days. This depicts analysts’ optimism about the company. Earnings for 2023 are expected to grow 9.6% from 2022. LGND currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ambac Financial Group: This is a New York-based financial services holding company.
AMBC has lost 21.5% year to date, against the industry’s 4.2% rise. Loss estimates for 2023 have narrowed down to 40 cents per share from $1.25 over the past 60 days. AMBC currently carries a Zacks Rank #2 (Buy).
Exponent: Based in Menlo Park, CA, EXPO operates as a science and engineering consulting company in the United States and abroad.
EXPO currently carries a Zacks Rank #2. The stock has lost 7.1% YTD, underperforming the industry’s 11.7% rise. That said, earnings estimates for 2023 have increased to $2.10 per share from $2.09 over the past 60 days. Earnings for 2023 are expected to grow 7.1% from 2022.
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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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Ligand Pharmaceuticals Incorporated (LGND) : Free Stock Analysis Report
Exponent, Inc. (EXPO) : Free Stock Analysis Report
Ambac Financial Group, Inc. (AMBC) : Free Stock Analysis Report
