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Analysts Initiate Coverage: 4 Stocks to Buy for Higher Return

There’s no denying that a lack of consistency in information creates inefficiencies that might result in the misinterpretation of stocks. The initiation of coverage by analysts offers critical information on a stock, which is of great value to investors.

Dorian LPG Ltd. LPG, Agilysys, Inc. AGYS, Kyndryl Holdings, Inc. KD and Apollo Medical Holdings, Inc. AMEH are a few stocks that have witnessed new analyst coverage lately. These, therefore, are expected to attract investor attention.

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.

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 also consider other relevant parameters to make it 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 the volume isn’t enough, it will not attract individual investors).

Here are four among the 10 stocks that passed the screen:

Dorian LPG: Headquartered in Stamford, CT, this company engages in the transportation of liquefied petroleum gas (LPG) through its LPG tankers worldwide.

LPG currently carries a Zacks Rank #1 (Strong Buy). The stock has gained 43.1% over the past year, outperforming the industry’s 9.4% rise. Earnings estimates for fiscal 2023 have increased to $4.01 per share from $2.63 per share over the past 60 days. The estimated figure implies 201.5% growth from the year-ago period, thanks to the strength of the freight market. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilysys: This Alpharetta, GA-based company operates as a developer and marketer of hardware and software products and services to the hospitality industry in North America, Europe, the Asia-Pacific and India.

AGYS currently carries a Zacks Rank #2 (Buy). The stock has gained 113.3% over the past year compared with the industry’s 0.9% rise. Earnings estimates for fiscal 2023 have increased to 93 cents per share from 90 cents per share over the past 90 days. The estimated figure indicates 13.4% growth from the year-ago period.

Kyndryl Holdings: This company operates as a technology services provider and is headquartered in New York. KD provides IT infrastructure services worldwide.

KD currently carries a Zacks Rank #2. The stock has declined 25.7% over the past year, faring better than the industry’s 37.4% decline.

Apollo Medical Holdings: Based in Alhambra, CA, this is a physician-centric, technology-powered healthcare company providing medical care services.

AMEH currently carries a Zacks Rank #2. The stock has declined 35.2% over the past year compared with the industry’s 21.4% decline. However, AMEH stock has gained 19.2% over the past month.

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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Agilysys, Inc. (AGYS) : Free Stock Analysis Report

Dorian LPG Ltd. (LPG) : Free Stock Analysis Report

Apollo Medical Holdings, Inc. (AMEH) : Free Stock Analysis Report

Kyndryl Holdings, Inc. (KD) : Free Stock Analysis Report

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