4 Stocks in Focus on New Analysts Coverage

Coverage initiation on a stock by analyst(s) helps in interpreting information pertaining to capital markets, creating value for investors. Lack of information creates inefficiencies that might trigger misinterpretation of stocks (over- or under-valued).

In fact, coverage initiation usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the microscope definitely has some value.

Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.

Notably, the average change in broker recommendation is preferred over a single recommendation change.

Influence on Stock Price

It is interesting to note that the price impact of analyst initiation depends on the initial recommendation. Positive recommendations — Buy and Strong Buy — generally lead to a significantly positive price reaction in comparison to Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation. Meanwhile, stocks typically see an upward price movement with a new analyst coverage compared to what is witnessed with a rating upgrade under an existing coverage.

Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.

So, it’s a good strategy to bet on stocks that have seen increased analyst.

Below, we have selected four stocks that have seen increased analyst coverage over the last few weeks.

Screening Criteria

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 four of the five stocks that passed the screen:

Progress Software Corporation PRGS: Based in in Bedford, MA, this Zacks Rank #1 (Strong Buy) company develops business applications. The company’s shares have gained 16.7% compared with the industry’s 50.7% rise over the past six months. Although shares have underperformed its industry during the period, its earnings estimates for 2020 have climbed to $2.96 per share from $2.86 over the past 30 days, depicting analysts’ optimism over the company’s earnings growth potential. The company’s earnings are expected to grow 10% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Griffon Corporation GFF: Headquartered in New York, NY, this diversified management and holding company conducting business through its affiliates currently sports a Zacks Rank #1. The company has gained 104.4% in the past six months compared with its industry’s 48.1% rise. Its earnings estimates for 2020 have climbed 4.6% to $1.59 per share over the past seven days. The company’s earnings for 2020 are expected to grow 47.2%.

Cornerstone Building Brands, Inc. CNR:  Headquartered in Cary, NC, this company is the manufacturer of exterior building products, primarily in North America. Shares of the company, which currently holds a Zacks Rank #2 (Buy), have gained 163.4% in the past six months, compared with its industry’s 74.3% rise. Loss estimates for 2020 have narrowed down to 45 cents per share from $1.42 per share over the past 60 days. The company’s earnings for 2021 are expected to grow 175.6%.

TravelCenters of America Inc. TA: Based in Westlake, OH, this company operates travel centers and standalone restaurants in the United States and Canada. This company currently carries a Zacks Rank #3 (Hold). The stock has gained 161.4% over the past six months, compared with its industry’s 42% rally. The company’s earnings for 2021 are expected to grow 329.4%.

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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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TravelCenters of America LLC (TA): Free Stock Analysis Report
Progress Software Corporation (PRGS): Free Stock Analysis Report
Griffon Corporation (GFF): Free Stock Analysis Report
Cornerstone Building Brands, Inc. (CNR): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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