There’s no denying that the lack of consistency in information creates inefficiencies that might result in misinterpretation of stocks. Initiation of coverage by analysts offers critical information on a stock which is of great value to investors.
Coverage initiation on a stock by analyst(s) usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.
Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.
Needless to say, the average change in broker recommendation is preferred over a single recommendation change.
How Does Analyst Coverage Influence 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 a 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 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.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Below, we have selected five stocks that have seen increased analyst coverage 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 11 stocks that passed the screen:
The Toro Company TTC: Bloomington, MN-based company designs, manufactures, and markets professional and residential equipment worldwide. The stock currently sports a Zacks Rank #1 (Strong Buy). The company has gained 32.1% in the past six months versus its industry’s 34.7% rise. Its earnings estimates for fiscal 2020 have climbed 16.3% to $2.86 per share over the past 30 days. The company’s trailing 12-month return on equity (ROE) is currently pegged at 32.6%, higher than the industry average of 2.5%.
Progress Software Corporation PRGS: Based in in Bedford, MA, this Zacks Rank #2 (Buy) company develops business applications. The company’s shares have gained 7.3% compared with the industry’s 35.2% rise over the past six months. Although the stock has underperformed its industry during the period, its earnings estimates for 2020 have climbed 3.9% over the past 30 days, depicting analyst optimism over the company’s earnings growth potential. The company’s earnings are expected to grow 10% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
News Corporation NWSA: Headquartered in New York, NY, this media and information services company currently carries a Zacks Rank #2. The company has gained 63.2% in the past six months compared with its industry’s 65.5% rise. Its earnings estimates for the current year have climbed 5% to 21 cents per share over the past 30 days.
eXp World Holdings, Inc. EXPI: Based in Bellingham, WA, this company provides cloud-based real estate brokerage services primarily in the United states and Canada. This Zacks Rank #3 (Hold) stock has gained 538.3% in the past six months compared with its industry’s 52.2% rise. The company’s earnings for 2020 are expected to grow 300%. Its earnings estimates for 2020 have climbed 50% to 30 cents per share over the past 30 days.
Centrus Energy Corp. LEU: This Bethesda, MD-based company supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, Belgium, and internationally. This Zacks Rank #3 stock has gained 89.4% in the past six months compared with its industry’s 71% rise. The company’s earnings for 2020 are expected to grow 254.7%.
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.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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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News Corporation (NWSA) : Free Stock Analysis Report
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