These 5 Stocks Are Safe Bets Courtesy of New Analyst Coverage
New analyst coverage provides extensive data on stocks for investors. Analysts are privy to vital information, which is crucial for investment decisions. Lack of information creates chances of misinterpretation of stocks (over- or under-valued).
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.
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 ratings on stocks under continuous coverage. Needless to say, the average change in broker recommendation is 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 five 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 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 16 stocks that passed the screen:
UFP Industries, Inc. UFPI: Headquartered in Grand Rapids, MI, UFP Industries supplies wood, wood composite and other products in retail, industrial, and construction market. The stock carries a Zacks Rank #1 (Strong Buy) and has gained 32.3% over the past six months compared with its industry’s 33.6% growth. Although the stock has underperformed the industry, earnings estimates have moved up 28% over the past 30 days for the current year, depicting analyst optimism over the company’s earnings growth potential. Earnings for the company are expected to grow 21% for 2021. You can see the complete list of today’s Zacks #1 Rank stocks here.
Interactive Brokers Group, Inc. IBKR: Based in Greenwich, CT, Interactive Brokers Group operates as an automated global electronic market maker and broker. The stock carries a Zacks Rank #1 and has gained 66.6% over the past six months compared with its industry’s 82.3% growth. Nonetheless, earnings estimates have moved up 8.8% over the past 30 days for 2021. Earnings for the company are expected to grow 14.5% for 2021.
Avid Bioservices, Inc. CDMO: Based in Tustin, CA, this contract development and manufacturing organization currently carries a Zacks Rank #2 (Buy). The stock has gained 146.6% over the past six months compared with its industry’s 7.8% growth. Earnings estimates have moved up 150% over the past 30 days for 2021. Earnings for the company are expected to grow 118.5% for 2021.
Amtech Systems, Inc. ASYS: Based in Tempe, AZ, this company manufactures and sells capital equipment and related consumables for use in fabricating silicon carbide (SiC), silicon power devices, analog and discrete devices, electronic assemblies, and light-emitting diodes (LEDs) worldwide. The stock carries a Zacks Rank #2 and has gained 136% over the past six months compared with its industry’s 21% growth. Earnings in 2021 are now expected to be 16 cents per share versus prior expectation of loss of 18 cents over the past 30 days.
Gaia, Inc. GAIA: Based in Louisville, CO, Gaia operates a digital video subscription service and on-line community for underserved member base in the United States, Canada, Australia, and internationally. Although the stock has underperformed the industry over the past six months, earnings estimates have moved up 140% over the past 30 days for 2021. Earnings of this Zacks Rank #3 (Hold) company are expected to grow 300% in 2021.
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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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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
Amtech Systems, Inc. (ASYS) : Free Stock Analysis Report
UFP Industries, Inc. (UFPI) : Free Stock Analysis Report
Gaia, Inc. (GAIA) : Free Stock Analysis Report
Avid Bioservices, Inc. (CDMO) : Free Stock Analysis Report
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