Find Strong Stocks to Buy in November with New Analyst Coverage
The stock market bounced back in a big way in October. Wall Street spent the last month buying up beaten-down stocks across a wide spectrum of areas based on the idea that a large chunk of the rising interest rate environment and declining earnings had been priced in already.
Reports from Amazon, Alphabet, and other tech standouts last week perhaps signaled that investors had grown overly optimistic. The current economic environment showcased that not even the technology titans are immune from the wider forces dragging down spending and profits. That said, the overall S&P 500 earnings outlook for Q3 and FY23 still don't point to a major economic decline.
The most recent Zacks data indicates that fiscal 2022 earnings will climb 6% (driven by the energy sector) and then another 4.5% in 2023. In order to extend the current rally, Wall Street will likely need to see the earnings picture stabilize to help mark a bottom for the declining EPS picture, with many economic bellwethers on the consumer spending side set to report in the coming weeks.
On the rate front, investors don’t have to wait much longer to find out what Jay Powell and the Fed will do. Traders are still betting heavily that the Fed raises its core interest rate by 0.75% when its two-day FOMC meeting ends on November 2. But there is growing optimism that the central bank will be able to ease its foot off the gas in December and beyond.
Even with all of the turmoil and economic uncertainty, investors might want to hunt for strong stocks because staying in cash comes at a cost. Plus, there are plenty of stocks that have done well in 2022, given their ability to improve their businesses amid the current economy. And history is on the side of the bulls as we enter the midterms since the S&P 500 has climbed in the year period following every midterm election since 1942.
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 in November 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 are two of the 12 stocks that came through the screen today…
Super Micro Computer SMCI - (from 2 analysts four weeks ago to 3)
Super Micro Computer is an application-optimized total IT solutions provider. Super Micro aims to deliver first to market innovation for enterprise, cloud, AI and 5G Telco/Edge IT Infrastructure, and beyond. SMCI posted its fourth-straight bottom-line beat last quarter and lifted its guidance amid the market uncertainty. Super Micro Computer’s positive EPS revisions help it land a Zacks Rank #1 (Strong Buy) with it set to report its Q1 fiscal 2023 results on November 1 (today).
Zacks estimates call for Super Micro’s revenue to climb 22% in FY23 (this year) and another 10% in FY24. The company’s adjusted earnings are projected to jump 41% this year. Super Micro’s Computer- Storage Devices industry is in the top 35% of over 250 Zacks industries. Plus, its Zacks consensus price target offers 50% upside to its current price.
The strong upside potential comes despite the fact that SMCI shares have surged 60% in 2022 and have outperformed the larger Zacks tech sector over the last decade, up 775% vs. 185%. Investors will want to assess its most recent earnings release and guidance. But SMCI appears to be a stock worth watching.
Washington Federal, Inc. WAFD - (from 2 analysts four weeks ago to 3)
Washington Federal conducts operations through its federally insured savings and loan association subsidiary, Washington Federal Bank or WaFd Bank with over 200 branches across eight western states—Washington, Oregon, Arizona, New Mexico, Idaho, Utah, Neveda and Texas. The firm has been profitable every year since 1965 and it went public in 1982.
WAFD’s total return including dividends over the past decade is 190% to match its industry’s average and top the broader Zacks Finance Sector’s 110%. In terms of price return, Washington Federal shares are up 16% in 2022, including a 26% surge in the last month. WAFD crushed our quarterly earnings estimates and upped its guidance in the middle of October. Washington Federal’s positive EPS revisions help it land a Zacks Rank #1 (Strong Buy) right now. Plus, its Banks–West space is in the top 8% of over 250 Zacks industries, as they benefit from rising interest rates.
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.
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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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