As analysts are the key information intermediaries in capital markets, initiation of coverage by them offers critical information on a stock which is of great value to investors.
Coverage initiation by analyst(s) on a stock portrays higher investor inclination. Investors, on their part, often assume there is something special in a stock to attract analysts’ interest. In other words, they believe that the company coming under coverage has value that can’t be ignored.
Obviously, stocks are not randomly chosen to cover. New coverage usually reflects a reassuring future envisioned by the analyst(s). At times, increased investors’ focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t love to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly-added stocks are more favorable than ratings on continuously covered stocks.
It is worth mentioning here that the average change in broker recommendation is always preferred over a single recommendation change.
New Analyst Coverage & Impact on Price Movement
The price movement of a stock is the function of the recommendations on it from new analysts. Typically, stocks see an upward price movement on new analyst coverage compared to what was witnessed 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.
Meanwhile, investors start paying more attention to the stock (that has very few or no existing coverage) on which an analyst provides a new recommendation. Also, any new information attracts portfolio managers to build a position in the stock.
Below, we have selected five stocks that have seen increased analyst coverage 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 three stocks that passed the screen:
Stocks to Snap Up on New Analyst Coverage: SunCoke Energy Inc (SXC)
SunCoke Energy Inc (NYSE:SXC), a producer of metallurgical coke in the Americas, flaunts a Zacks Rank #1 (Strong Buy).
Shares of the company have gained more than 7% in the past six months, comparing favorably with the industry’s 2.3% decline.
The Zacks Consensus Estimate for earnings has moved 38.1% up for 2018 and 25.9% for 2019 over the past 60 days, depicting the stock’s potential to scale higher.
Stocks to Snap Up on New Analyst Coverage: Minerals Technologies Inc (MTX)
Minerals Technologies Inc (NYSE:MTX) develops, produces, and markets various specialty mineral, mineral-based, and synthetic mineral products, and supporting systems and services worldwide.
Earnings estimates have remained stable for 2018 and 2019 in the last 30 days.
This Zacks Rank #3 (Hold) stock has a 3-5 year expected EPS growth rate of 8.2%.
Stocks to Snap Up on New Analyst Coverage: Camtek LTD. (CAMT)
Camtek LTD. (NASDAQ:CAMT) designs, develops, manufactures, and markets automatic optical inspection systems and related products.
The stock has a Zack Rank #3 and has gained more than 26% in the past six months, outperforming the industry’s 19.9% rally.
Earnings estimates have moved 4.5% north for 2018 and 1.8% for 2019 in the last 30 days.
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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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