The hopes of a phased reopening of businesses and improving prospects of a vaccine amid the coronavirus-affected economic scenario have been making markets volatile.
With global stock markets experiencing record levels of volatility, investors may look for stocks that recently came under new analyst coverage. This is because analysts don’t initiate coverage on a stock randomly. New coverage is usually the result of huge investor focus on a stock or its promising prospects.
Interestingly, stocks typically see an incremental upward price movement with new analyst coverage compared to what they witness with continuation of existing analyst coverage. Of course, the price movement depends on the recommendations from the new analysts. Positive recommendations — Buy and Strong Buy — lead to a significant positive incremental price reaction than Strong Sell, Sell or Hold recommendations.
Moreover, if an analyst gives a new recommendation on a company that has limited or no analyst coverage, investors start paying more attention to it. As analysts almost always initiate coverage with a positive recommendation. Also, any new information attracts portfolio managers to build a position in the stock.
However, one should preferably look for the average change in broker recommendation rather than a single recommendation change. Then again, an upgrade, an initiation or even increased coverage is equally important.
Keeping this mind, it’s a good strategy to focus on the number of analyst recommendations that have increased over the last few weeks.
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 five of the nine stocks that passed the screen:
National General Holdings Corp. NGHC: Headquartered in New York, NY, this specialty personal lines insurance holding company currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have outperformed the industry year to date. The Zacks Consensus Estimate for its current-year earnings has risen 9.6% over the past 30 days, depicting analyst optimism over the stock’s potential. It has an expected earnings growth rate of 16.7% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
MGP Ingredients, Inc. MGPI: This Atchison, KS-based company produces and supplies distilled spirits, and specialty wheat proteins and starch food ingredients. This Zacks Rank #2 (Buy) company has a trailing 12-month return on equity or ROE of 17.8% compared with the industry’s 10.3%.
The Lovesac Company LOVE: Headquartered in Stamford, CT, this company designs, manufactures, and sells foam filled furniture, sectional couches, and related accessories. It currently carries a Zacks Rank #2 and has outperformed its industry year to date. Its three-five year expected earnings growth rate is currently pegged at 35%.
VeriSign, Inc. VRSN: This Reston, VA-based company provides domain name registry services and Internet infrastructure. It currently has a Zacks Rank #2 and has outperformed its industry year to date. It has an expected earnings growth rate of 24.7% for the current year.
New Jersey Resources Corporation NJR: Based in Wall, NJ, this is an energy services holding company. It currently carries a Zacks Rank #3 (Hold) and has outperformed its industry year to date. The Zacks Consensus Estimate for its current-year earnings has risen 1% over the past 30 days. It has an expected earnings growth rate of 8.2% for the current year.
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.
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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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VeriSign, Inc. (VRSN) : Free Stock Analysis Report
National General Holdings Corp (NGHC) : Free Stock Analysis Report
NewJersey Resources Corporation (NJR) : Free Stock Analysis Report
MGP Ingredients, Inc. (MGPI) : Free Stock Analysis Report
The Lovesac Company (LOVE) : Free Stock Analysis Report
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