Find Strong Stocks to Buy in 2023 Utilizing New Analyst Coverage
The stock market is off to a largely positive start to 2023 despite ongoing volatility. The S&P 500 is up roughly 5% so far this year through Tuesday morning trading. The recent surge helped it once again break above some key moving averages heading into the heart of fourth quarter earnings season.
The benchmark whipsawed above and below its 50-day and 200-day moving averages over the last week as the bull and bear dance continues. The upbeat sentiment appears to be gaining some steam as more of Wall Street starts to think inflation has finally peaked. Investors are betting the Fed will be able to slow its rate hikes and even possibly lower interest rates by the end of 2023.
The other major driver of stock prices are facing a crucial test. Microsoft, Tesla, Visa, and other heavyweights all report their quarterly results and provide updated guidance this week. The market currently seems to think the earnings downturn is already mostly priced in. If the outlook for earnings does indeed hold up, the market could easily extend its recent bullishness.
The most recent Zacks earnings data published by our Director of Research Sheraz Mian last Friday projects that Q4 S&P 500 earnings will fall by -7.4% on 4% higher sales. First quarter fiscal 2023 earnings are expected to slide -4.3%, with Q2 projected to dip -3.9% YoY. Thankfully, Q2 is projected to mark the earnings trough, with growth projected to return in the third quarter of 2023 (+2.7%).
The stock market is always forward looking and there are growing signs of slowing consumer spending and a wave of layoffs, both of which should help drag down inflation. This backdrop might mean investors are looking to buy stocks as we close out the first month of 2023.
Today we utilized our new analyst coverage screen to help investors find stocks that are gaining more attention from Wall Street that could be potential winners right now and down the line.
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 are two of the seven stocks that came through the screen today…
LSI Industries (LYTS) - (from 2 analysts four weeks ago to 3)
LSI Industries is a leading U.S.-based manufacturer of display solutions and indoor/outdoor lighting. LSI Industries posted a massive fiscal 2022, with revenue up 44%. The firm has topped our quarterly earnings estimates by an average of 72% in the trailing four periods, including a 29% beat in Q1 FY23. LYTS said back in November that it was "on-track to deliver significant YoY improvement in free cash flow and debt reduction" in 2023 as it manages ongoing inflation and economic cycle setbacks.
Zacks estimates call for LSI Industries to post another 6.3% revenue growth in 2023 and 3% higher in 2024. The firm is also projected to expand its bottom line by 19% in FY23 and another 9% in FY24. LYTS stock has skyrocketed 115% in the past 12 months and it still trades in line with its industry and its own five-year median at 16.3X forward earnings. Plus, the stock pays a dividend.
LSI Industries reports its Q2 FY23 financial results on Thursday, January 26.
Eastern Bankshares, Inc. (EBC) - (from 2 analysts four weeks ago to 3)
Eastern Bankshares, Inc. is the stock holding company for Eastern Bank. The Boston-based Eastern Bank has more than 120 locations, with approximately $22 billion in total assets. Eastern provides banking, investment and insurance products and services for consumers and businesses of all sizes, including through its Eastern Wealth Management division and its Eastern Insurance Group LLC subsidiary.
Eastern Bankshares went public in October of 2020, with its stock up 9% in the last two years vs. its industry’s 5% climb and the S&P 500’s 3%. Zacks estimates call for its revenue to climb 22% in FY22 and another 13% in FY23 to help boost its adjusted earnings by 38% and 21%, respectively. And EBC’s dividend currently yields 2.3%.
Eastern Bankshares reports its Q4 FY22 financial results on Thursday, January 26.
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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LSI Industries Inc. (LYTS) : Free Stock Analysis Report
Eastern Bankshares, Inc. (EBC) : Free Stock Analysis Report
