4 Stock to Buy as New Analysts Initiate Coverage
New analyst coverage can indeed be highly beneficial for investors and plays a significant role in the financial markets. Analysts often have extensive knowledge and expertise in specific industries or sectors. Their research and analysis can provide investors with valuable insights into a company's financial health, growth prospects, competitive position and industry trends. This information can be difficult for individual investors to obtain on their own.
Recently, several stocks, including GeoPark Limited GPRK, Build-A-Bear Workshop, Inc. BBW, AAR Corp. AIR and Adtalem Global Education Inc. ATGE have attracted the attention of analysts, signaling potential value and growth opportunities for investors.
Analysts don't randomly choose which stocks to cover. Their decision is typically driven by significant investor interest or promising prospects associated with a particular stock.
An interesting observation is that when stocks receive new analyst coverage, they often experience gradual upward price movements compared to those already covered by analysts. The magnitude of this price movement is influenced by the recommendations made by the new analysts. Positive recommendations like "Buy" and "Strong Buy" tend to result in more substantial positive price reactions than "Strong Sell," "Sell," or "Hold" recommendations.
When an analyst provides a new recommendation for a company with limited or no prior analyst coverage, investors pay increased attention to the stock. Additionally, portfolio managers may become interested in building positions in such stocks due to the fresh information.
Rather than focusing solely on a single recommendation change, it is advisable to consider the average change in broker recommendations. Upgrades, initiations, and increased coverage by multiple analysts carry equal significance in assessing a stock's potential.
To create a prudent investment strategy, it's worthwhile to concentrate on the number of analyst recommendations that have increased in recent weeks. This approach can offer valuable insights into the overall sentiment and potential trajectory of a stock, helping investors make well-informed decisions.
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 four out of 11 stocks that passed the screen:
GeoPark: Based in Bogotá, Colombia, this company engages in the exploration, development, and production of oil and gas reserves in Chile, Colombia, Brazil, Argentina and Ecuador. The company’s shares have gained 8.8% in the past three months versus the industry’s 7.2% increase.
GPRK — a Zacks Rank #1 (Strong Buy) company — currently flaunts a VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum. The earnings per share (EPS) estimate for 2023 has increased to $2.83 from $2.66 over the past 30 days. This depicts analysts’ optimism about the company. You can see the complete list of today’s Zacks #1 Rank stocks here.
Build-A-Bear Workshop: This St. Louis, MO-based company operates as a multi-channel retailer of plush animals and related products in the United States, Canada, the United Kingdom, Ireland, and internationally. The company’s shares have gained 30.1% in the past three months against the industry’s 14.6% decrease.
BBW — a Zacks Rank #1 company — currently flaunts a VGM Score of A. The EPS estimate for 2023 has increased to $3.60 from $3.52 over the past 30 days. The estimated figure indicates 16.9% year-over-year growth.
AAR Corp.: Wood Dale, IL-based AAR Corp., incorporated in 1951, provides various products and services to the aviation and defense industries worldwide. The company’s shares have gained 30.6% year to date compared with the industry’s 4.6% increase.
AIR — a Zacks Rank #2 (Buy) company — currently flaunts a VGM Score of B. The EPS estimate for fiscal 2024 has increased to $3.47 from $3.46 over the past seven days. The estimated figure indicates 21.3% year-over-year growth.
Adtalem Global Education: Based in Chicago, IL, this company is a leading healthcare education provider and workforce solutions innovator. The company’s shares have gained 25.8% in the past three months compared with the industry’s 18.2% rise.
ATGE — a Zacks Rank #2 company — surpassed the Zacks Consensus Estimate in the last four trailing quarters, the average being 22%. The EPS estimate for 2023 has increased to $4.31 from $4.28 over the past 60 days.
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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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AAR Corp. (AIR) : Free Stock Analysis Report
Build-A-Bear Workshop, Inc. (BBW) : Free Stock Analysis Report
Geopark Ltd (GPRK) : Free Stock Analysis Report
Adtalem Global Education Inc. (ATGE) : Free Stock Analysis Report
