(Written by Alexander Crawford. Analyst ratings sourced from Reuters, options data sourced from Schaeffer’s.)
Looking for interesting stock ideas but don’t know where to start? One idea is to find out what analysts think.
Based on the ratings they publish for company outlook, you can narrow down your list of candidates to only consider those with the best prospects by analyst standards.
This is enhanced when you search for predictive analysts – analysts with a history of correctly predicting stock movements – by comparing past changes in ratings to stock performance. Groups of analysts that have correctly predicted stock price movement before may have a better chance of doing it now.
To illustrate this idea, we ran a stock screen using analyst ratings from Reuters. These ratings are presented on a linear scale (with 1 = “Strong Buy” and 5 = “Strong Sell”), and we sliced the data of US-traded stocks that have seen significant decreases in put/call over the last ten trading days (a bullish development) into three monthly time periods, and identified the groups of analysts that have shown predictive value over two consecutive time periods.
We further narrowed down the list by only focusing on those stocks that have seen bullish trends in recent analyst opinion.
Although past performance is no guarantee of future results, the recent accuracy of these analyst ratings suggests their opinions may be a helpful starting-off point for your own analysis.
Options traders and predictive analysts are bullish on these names – do you think they have strong enough prospects to justify the hype?
Analyze These Ideas (Tools Will Open In A New Window)
1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned
1. Finish Line Inc. (FINL): Operates as a mall-based specialty retailer in the United States. Market cap of $1.02B. Put/call ratio decreased from 0.18 to 0.15 between 10/28 and 11/09, a decrease of 16.67%. Mean average rating changed from 1.62 to 1.57 between 08/11/11 and 09/10/11 (bullish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 5.88%. Analysts also got it right between 09/10/11 and 10/10/11, with the mean rating changing from 1.57 to 1.64 (bearish change). Over the following month, the stock generated an alpha of -8.75% relative to the S&P 500 index, as predicted by the analysts. This same group of analysts now expect the stock to outperform in the future, with the mean rating changing from 1.64 to 1.58 between 10/10/11 and 11/09/11 (i.e. bullish change).
2. Mobile Telesystems OJSC (MBT): Provides telecommunications services primarily in the Russian Federation, Ukraine, Uzbekistan, Turkmenistan, Armenia, and Belarus. Market cap of $13.78B. Put/call ratio decreased from 0.30 to 0.24 between 10/27 and 11/09, a decrease of 20%. Mean average rating changed from 1.7 to 1.75 between 08/11/11 and 09/10/11 (bearish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of -6.86%. Analysts also got it right between 09/10/11 and 10/10/11, with the mean rating changing from 1.75 to 1.85 (bearish change). Over the following month, the stock generated an alpha of -7.37% relative to the S&P 500 index, as predicted by the analysts. This same group of analysts now expect the stock to outperform in the future, with the mean rating changing from 1.85 to 1.84 between 10/10/11 and 11/09/11 (i.e. bullish change).