Analysts don’t add a stock to their coverage randomly. New coverage on a stock is usually the result of huge investor focus on it or its promising future prospects.
Interestingly, stocks typically see an incremental upward price movement with new analyst coverage compared to what they witness with continuation of existing analyst coverage. Of course, the price movement depends on the recommendations from the new analysts. Positive recommendations — Buy and Strong Buy — lead to a significant positive incremental price reaction than Strong Sell, Sell or Hold recommendations.
Moreover, if an analyst gives a new recommendation on a company that has limited or no analyst coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.
However, one should preferably look for the average change in broker recommendation rather than a single recommendation change. Then again, an upgrade, an initiation or even increased coverage is equally important.
Keeping this mind, it’s a good strategy to focus on the number of analyst recommendations that have increased 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 10 stocks that passed the screen:
Northwest Bancshares, Inc. NWBI, a Zacks Rank #2 (Buy) company, operates as a holding company for Northwest Bank that offers various personal and business banking solutions. Shares of the company have declined 2.2% year to date, underperforming its industry’s rally of 22%. Nonetheless, its earnings estimates have risen 4.8% and 1.9% for the current year and next over the past 60 days, depicting analysts’ optimism over the stock’s potential.
The Hanover Insurance Group, Inc. THG, also a Zacks Rank #2 company, provides various property and casualty insurance products and services in the United States. Shares of the company have gained 18.7% year to date, outperforming its industry’s rally of 10.1%. Earnings estimates have moved 2.9% and 0.6% up for the current year and next, respectively, over the past 60 days.
the Rubicon Project, Inc. RUBI is a global technology company. It currently carries a Zacks Rank #2. Shares of the company have gained 114.3% year to date, outperforming its industry’s rally of 17.8%. Loss estimates for 2019 have narrowed to 9 cents per share from 18 cents per share over the past 60 days. Meanwhile, earnings for 2020 are expected to grow 211.1%.
Hepion Pharmaceuticals, Inc. HEPA, a Zacks Rank #3 (Hold) stock, is a biopharmaceutical company. Although shares of the company have underperformed its industry year to date, loss estimates have narrowed for 2020 to $1.42 per share from $1.75 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Coca-Cola FEMSA, S.A.B. de C.V. KOF, currently carrying a Zacks Rank #3, is a franchise bottler, which produces, markets, sells, and distributes Coca-Cola trademark beverages. Although shares of the company have underperformed its industry year to date, its earnings estimates have moved 3.3% north for the current year over the past 60 days.
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.
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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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The Rubicon Project, Inc. (RUBI) : Free Stock Analysis Report
Coca Cola Femsa S.A.B. de C.V. (KOF) : Free Stock Analysis Report
Northwest Bancshares, Inc. (NWBI) : Free Stock Analysis Report
The Hanover Insurance Group, Inc. (THG) : Free Stock Analysis Report
ContraVir Pharmaceuticals Inc (HEPA) : Free Stock Analysis Report
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