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Stocks popped through late afternoon trading on the last day of the second quarter. The move came after Monday’s big jump that followed stronger-than-expected pending homes sales that once again showcased that April was likely the bottom of our coronavirus economic tumble.
Wall Street will continue to reckon with how to handle growing spikes of coronavirus cases in the U.S. from California to Arizona, alongside the low interest rate environment that could keep the market in “don’t fight the Fed” mode.
That said, the next big test for the market will likely come when second quarter earnings season unofficially gets underway on July 14, with JPMorgan (JPM) and other big banks. But from our perspective here at Zacks, Q2 earnings season already started, with reports out from Nike (NKE), Adobe (ADBE), and others (also read: Handicapping the Q2 Earnings Season Amid the Coronavirus).
Therefore, it’s time to prepare for the upcoming period that will provide much more context about the coronavirus downturn and what’s to come. And why not think about buying a few stocks that offer the potential for solid gains during the broader earnings season.
New Analyst Coverage
Today we screened for strong stocks that recently received 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.
Right off the bat, 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 three of the eleven stocks that came through the screen this week…
Getty Realty Corp. (GTY) - (from 2 analysts four weeks ago to 5)
Cowen Inc. (COWN) - (from 2 analysts four weeks ago to 3)
GAN Limited (GAN) - (from 2 analysts four weeks ago to 3)
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.
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NIKE, Inc. (NKE) : Free Stock Analysis Report
JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
Getty Realty Corporation (GTY) : Free Stock Analysis Report
GAN Limited (GAN) : Free Stock Analysis Report
Cowen Group, Inc. (COWN) : Free Stock Analysis Report
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
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