Coverage initiation on a stock by analyst(s) is critical for investments as it offers key information on a stock which is of great value to investors. 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 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. At times, increased investor focus on a stock motivates analysts to take a closer look at it.
Then again, average change in broker recommendation is always preferred over a single recommendation change.
Analyst Coverage & Price Movement
Interestingly, the price movement is generally a function of the recommendations 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.
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:
H&E Equipment Services, Inc. HEES, one of the largest integrated equipment services companies, has gained 101.2% in the last year, outperforming its industry’s gain of 49.5%. The stock has seen earnings estimates move up 14.3% for the current quarter and 43.8% for the current year over the past 60 days. This Zacks Rank #1 (Strong Buy) stock has an expected earnings growth rate of 14.3% for the current quarter and 53.3% for 2017. Positive earnings estimate revisions indicate the stock’s potential for price appreciation. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nomad Foods Ltd. NOMD manufactures and distributes frozen food items, primarily in the U.K., Italy, Germany, Sweden, France and Norway. The stock has climbed 44.9% in the last year, while its industry declined 5.9%. This Zacks Rank #3 (Hold) stock has seen earnings estimates move up 9.5% to 23 cents for the current quarter over the past 60 days.
Strayer Education Inc. STRA, a for-profit education company, has gained more than 29% in the last year, almost on par with its industry’s rally. The stock carries a Zacks Rank #3 and has an expected earnings growth rate of 13.8% for 2017 and 12.7% for 2018.
BioLife Solutions, Inc. BLFS develops, manufactures, and markets patented hypothermic storage and cryopreservation solutions for cells and tissues in the United States. The stock has gained more than 264% in the last year, while its industry grew 24%. The stock carries a Zacks Rank #2 (Buy). The company’s current year’s loss estimates have narrowed to 21 cents from 24 cents over the last 30 days. It has an expected earnings growth rate of 35.9% for 2017.
Assembly Biosciences, Inc. ASMB, a biopharmaceutical company, has gained more than 233% in the last year, while its industry declined 27.8%. The stock carries a Zacks Rank #2 and the company’s current year’s loss estimates have narrowed to $3.15 from $3.21 over the last 30 days.
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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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H&E Equipment Services, Inc. (HEES) : Free Stock Analysis Report
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Nomad Foods Limited (NOMD) : Free Stock Analysis Report
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