Markets

5 Stocks Set to Pop on New Analyst Coverage

An image of a person going over a financial report
Credit: Shutterstock photo

Many investors have immense faith in analysts' research as they fear that lack of information might trigger inefficiencies. Here, analysts play a vital intermediary role with their extensive access to relevant data.

Coverage initiation of a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume there is something special in a stock to attract analysts' attention. In other words, they believe that the company coming under the microscope definitely has some value.

Obviously, stocks are not randomly chosen to cover. New coverage on a stock 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 their ratings on continuously covered stocks.

It is needless to say, the average change in broker recommendation is preferred over a single recommendation change.

How does Analyst Coverage Influence Stock Price?

The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with a new analyst coverage compared to what they witness 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.

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 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).

The number of 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:

Eagle Bancorp, Inc.EGBN is the holding company for EagleBank. The stock currently has a Zacks Rank #2 (Buy) and has rallied 9.3% in the last three months, outperforming 8% gain of the Zacks categorized Banks-Northeast industry. It carries a growth style score 'B'.

Hostess Brands, Inc . TWNK is engaged in developing, manufacturing, marketing, selling and distributing sweet goods, primarily in the U.S. The stock currently has a Zacks Rank #3 (Hold) and has climbed 20.1% in the last three months, comparing favorably the Zacks categorized Food-Confectionery industry's 1.5% drop. Estimates also moved north by 42.9% for the current quarter and 27.4% for the current year in the last seven days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Sanchez Production Partners LPSPP remains focused on the acquisition, development and production of oil and natural gas properties and other integrated assets. The stock currently has a Zacks Rank #2 and has rallied 20.9% in the last three months, comparing unfavorably with the 2.7% dip of the Zacks categorized Oil & Gas-US Exploration & Production industry. The stock carries a VGM score of 'B'.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today .

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

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Eagle Bancorp, Inc. (EGBN): Free Stock Analysis Report

HOSTESS BRANDS (TWNK): Free Stock Analysis Report

Sanchez Production Partners LP (SPP): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

EGBN TWNK

Other Topics

Stocks

Latest Markets Videos