Use New Analyst Coverage to Buy Great Stocks During Q3 Earnings Season
The S&P 500 is currently hovering around its 200-day moving average as Wall Street kicks off its most pivotal stretch of earnings results. Microsoft, Meta, Alphabet, Amazon, and others all report this week, with Apple due out on November 2.
At the moment, the outlook for Tech sector earnings is very strong, especially for the fourth quarter and beyond. If the outlooks hold up, the market should be able to end 2023 on an upbeat note since the Fed appears essentially done with its rate hiking efforts.
Therefore, investors likely want to stay exposed to the stock market in the fourth quarter. It is always worth remembering just how difficult it is to time the market—just think back to this time last year.
One way for investors to find potentially market-beating stocks to buy is to search for stocks gaining analyst coverage.
The idea is pretty simple: analysts are more inclined to start covering a stock that they view as having substantial upside potential vs. picking up coverage only to say stay away.
Here is how to use our new analyst coverage screen to help investors find stocks to buy in October and throughout the fourth quarter and beyond.
New Analyst Coverage
Broker recommendations play their part no matter how investors feel about them. And we seemingly all take a look no matter what. Individual investors, large institutional portfolio managers, and everyone in between are likely pleased to see one of their stocks get an upgraded rating or a new analyst cover the company.
Investor interest can generate more analyst coverage. This helps explain why analysts jump on young, much-hyped and talked about tech companies. Then, as new coverage is initiated, the company and the stock become more visible, which in turn often leads to more demand potential and therefore the possibility of higher prices.
Plus, analysts almost always initiate coverage with a positive recommendation. And the logic follows because why spend all the time and write a research report on a company not widely tracked only to say it’s not good?
When it comes to companies with little to no analyst coverage, one new recommendation can sometimes give portfolio managers the validation they need to build a position. And the more money they can invest, the more they can potentially influence prices.
The best way to use this information is to search for companies with analyst coverage that has increased over the last 4 weeks. We just look at the number of analyst recommendations today and compare it to the number of analyst recommendations 4 weeks ago.
The rule of thumb here is that an increase in coverage leans bullish and a decrease signals bearish behavior. It is also worth pointing out that, in general, the change in the average broker recommendation is a better indicator than the actual recommendation itself.
On top of that, it is typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (As the number of analysts climbs the addition of new coverage isn’t earth-shattering.) In the end, increased coverage is still better than decreased coverage, unless the coverage is heading in the wrong direction.
Now let’s try this screen…
• Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago
(This shows stocks where new coverage has recently been added.)
• Average Broker Rating less than Average Broker Rating four weeks ago
(By 'less than', we mean 'better than' four weeks ago.)
• Prices greater than or equal to 5
(We’re applying all of the above parameters to stocks above $5 a share since many money managers won't even look at stocks under $5)
• Average Daily Volume greater than or equal to 100,000 shares
(If there's not enough volume, even individual investors won't want it).
Here are two of the nine stocks that came through the screen today…
TETRA Technologies, Inc. (TTI) - (from 2 analysts four weeks ago to 3)
TETRA Technologies is an energy services and solutions provider. TETRA’s core business is currently centered around completion fluids, calcium chloride, water management solutions, frac flowback, as well as production well testing services. TTI is actively expanding its business into lower carbon energy markets, driven by its chemistry expertise and beyond. These efforts include commercialization of its “ultra-pure zinc bromide clear brine fluid that is used for stationary batteries and energy storage,” and more.
TETRA’s upbeat earnings revisions help it capture a Zacks Rank #2 (Buy) right now. Zacks estimates call for TTI to post 18% revenue growth this year and another 14% next year to help boost its adjusted earnings by 100% and 60%, respectively.
Image Source: Zacks Investment Research
TTI Shares have skyrocketed over the last three year, including a 40% surge in the last three months to help it break out of its recent trading range. Despite the run, TETRA stock trades 32% below its average Zacks price target. TTI has soared above its 50-week moving average during its recent climb, with the stock also finding support at its 50-day recently. TETRA is set to release its quarterly results on Monday, October 30.
Grand Canyon Education, Inc. (LOPE) - (from 2 analysts four weeks ago to 3)
Grand Canyon Education is an education services provider that currently services 25 university partners. Grand Canyon Education boasts that it provides a ton of support services in the post-secondary education sector, via technological solutions, infrastructure and operational processes, and more.
Grand Canyon Education is projected to post roughly 5% revenue growth this year and 7% higher sales next year, based on current Zacks estimates. Meanwhile, its adjusted earnings are projected to climb 12% this year and 8% next year. Grand Canyon Education has topped our quarterly EPS estimates for nearly five years running, outside of two misses
Image Source: Zacks Investment Research
LOPE shares have outpaced the S&P 500 over the last decade. Yet, the stock has moved roughly sideways over the past five years. Grand Canyon Education is up 6% in the three months and 32% in the trailing 12 months. Still, Grand Canyon Education shares trade 19% below their average Zacks price target, and they are finding support around their 50-day moving average. The company is set to report on Thursday, November 2.
Many screeners won't let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. But you can with the Research Wizard. And you can backtest it all. Find out how to pick the right stocks right now by taking a free trial to the Research Wizard stock picking and backtesting program.
Click here to sign up for a free trial to the Research Wizard today.
Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Grand Canyon Education, Inc. (LOPE) : Free Stock Analysis Report
Tetra Technologies, Inc. (TTI) : Free Stock Analysis Report
