Use New Analyst Coverage to Find Strong Stocks to Buy for 2024
The market climbed slightly through mid-day trading on Tuesday as Wall Street reacted somewhat positively to the November CPI release that came in largely in line with expectations.
Investors have been pricing in the start of Fed rate cuts in 2024. The sliding yields have provided a springboard for the current market rally that began in late October. Yields on the 10-year U.S. Treasury are floating around 4.21% vs. 5.0% on October 18.
The bulls finally sent the S&P 500 and the Nasdaq to new 2023 highs over the last several sessions. More investors now appear to be positioning themselves for a possible rally to new all-time highs in 2024.
The current market backdrop likely means investors will want to find strong stocks to buy in December and the early weeks of 2024. One way to find potentially winning stocks is to search for companies gaining more attention from Wall Street analysts.
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 the back half of December for a potential Santa Claus rally 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 is one of the eight stocks that came through the screen today…
OFG Bancorp (OFG) - (from 2 analysts four weeks ago to 3)
OFG Bancorp (OFG) shares have soared to fresh all-time highs recently. OFG Bancorp is a diversified financial holding company that operates through its principal subsidiaries Oriental Bank, Oriental Financial Service, and Oriental Insurance. OFG Bancorp, which operates mostly in Puerto Rico and U.S. Virgin Islands, provides a range of financial services such as retail and commercial banking, lending and wealth management, and beyond. OFG Bancorp is aiming to stand out against its peers by boosting its digital-focused offerings.
Image Source: Zacks Investment Research
OFG Bancorp’s revenue has been trending higher over the last five years, including some big jumps recently. OFG topped our bottom line estimates once again in October and boosted its guidance to extend its run of solid upward earnings revisions.
OFG Bancorp’s recently beefed-up adjusted EPS outlook helps it land a Zacks Rank #2 (Buy) right now. OFG’s adjusted earnings are projected to climb 10% in 2023 on the back of 12% higher sales.
Image Source: Zacks Investment Research
OFG stock has climbed 110% in the past five years vs. the Zacks Finance sector’s 32%, including a 20% run to record heights in the last three months. Yet it still trades 6% below its average Zacks price target and at a 35% discount to the Finance sector at 9.5X forward 12-month earnings.
OFG Bancorp is also trading nearly in line with its 10-year median. All three of the brokerage recommendations Zacks now has for OFG are “Strong Buys.” On top of that, OFG Bancorp’s dividend yields 2.5% at the moment.
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.
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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_disclosure.
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