5 Stocks to Add to Your Portfolio on New Analyst Coverage
The importance of new analyst coverage is evident from the extensive data it unearths for investors. Analysts are privy to vital information, which is crucial to investment decisions.
Comfort Systems USA, Inc. FIX, MBIA Inc. MBI, Arlo Technologies, Inc. ARLO, Exponent, Inc. EXPO and Luna Innovations Incorporated LUNA are five stocks that have witnessed new analyst coverage lately. These are, therefore, expected to attract investor attention.
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. Many investors have immense faith in analysts’ research as they fear that lack of information might trigger inefficiencies.
Obviously, stocks are not randomly chosen to cover. A 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 more preferable than 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.
Now, if an analyst issues a new recommendation on a company that has very few 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 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 five out of 16 stocks that passed the screen:
Comfort Systems USA: This Houston, TX-based company is a national provider of comprehensive heating, ventilation and air conditioning installation, maintenance, repair and replacement services.
FIX has gained 39.3% year to date (YTD), outperforming the industry’s 35.1% rise. Earnings estimates for 2023 have increased to $7.17 per share from $6.35 over the past 60 days. This depicts analysts’ optimism over the company. Earnings for 2023 are expected to grow 35.5% from 2022. FIX currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MBIA: Based in Purchase, NY, this company provides financial guarantee insurance services to public finance markets.
MBI currently carries a Zacks Rank #1. The stock has lost 33.2% so far this year, underperforming the industry’s 12% decline. That said, loss estimates for 2023 have narrowed to 80 cents per share from $1.90 over the past 60 days.
Arlo Technologies: Based in Carlsbad, CA, this company provides a cloud-based platform in the Americas, Europe, the Middle East, Africa, and the Asia Pacific regions.
ARLO currently carries a Zacks Rank #2 (Buy). The stock has jumped 164.7% YTD, outperforming the industry’s 41% rise. Earnings estimates for 2023 have increased to 24 cents per share from 11 cents over the past 30 days. Earnings for 2023 are expected to grow 442.9% from 2022.
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 1.5% YTD, underperforming the industry’s 14.2% rise. That said, earnings estimates for 2023 have increased to $2.10 per share from $2.08 over the past 60 days. Earnings for 2023 are expected to grow 7.1% from 2022.
Luna Innovations: This Roanoke, VA-based company develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets.
LUNA currently carries a Zacks Rank #2. The stock has gained 13.4% YTD compared with the industry’s 16.3% rise. Earnings for 2023 are expected to grow 42.9% 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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MBIA, Inc. (MBI) : Free Stock Analysis Report
Exponent, Inc. (EXPO) : Free Stock Analysis Report
Comfort Systems USA, Inc. (FIX) : Free Stock Analysis Report
Luna Innovations Incorporated (LUNA) : Free Stock Analysis Report
Arlo Technologies, Inc. (ARLO) : Free Stock Analysis Report
