5 Stocks in Focus on New Analysts Coverage
New analyst coverage unearths extensive data on
stocks for investors. Analysts are privy to vital information,
which is crucial for investment decisions as lack of information
creates chances of misinterpretation of stocks (over- or
under-valued).
Coverage initiation on a stock by analyst(s) usually portrays
higher investor inclination. Investors, on their part, often assume
that there is something special in a stock to attract analysts to
cover it. In other words, they believe that the company coming
under the microscope definitely holds 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 investor focus on a stock motivates
analysts to take a closer look at it. After all, who doesn’t like
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.
Needless to say, the average change in broker recommendation is
preferred over a single recommendation change.
Impact on 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 more 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).
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 five of the seven stocks that passed the screen:
Balchem Corporation BCPC provides state-of-the-art
solutions and the finest quality products for a range of industries
and currently carries a Zacks Rank #2 (Buy). Shares of Balchem have
returned 12.9% over the past three months against its industry’s
8.2% decline. Earnings estimates have risen 7.9% for the current
year over the past 30 days, depicting analysts’ optimism over the
stock’s earnings potential. You can see the complete list
of today’s Zacks #1 Rank (Strong Buy) stocks here.
Methode Electronics, Inc. MEI, a global
manufacturer of electronic components and subsystems, currently
carries a Zacks Rank #2. The company’s shares have increased more
than 20% over the past three months, outperforming its industry’s
10% growth. Earnings estimates have advanced 12.7% over the past
seven days for the current year.
Chemed Corporation CHE, the nation's largest
provider of end-of-life hospice care services, carries a Zacks Rank
#2. Shares of the company have outperformed its industry over the
past three months. Earnings estimates have increased 1% over the
past 30 days for the current year.
Ubiquiti Networks, Inc. UBNT develops networking
technology for service providers, enterprises, and consumers. It
currently carries a Zacks Rank #3 (Hold) and its shares have gained
24.7% over the past three months (outperforming its industry).
Earnings estimates have increased 6.6% over the past 30 days for
the current year.
HEXO Corp. HEXO, a consumer-packaged goods
cannabis company, carries a Zacks Rank #3. Although shares have
underperformed its industry since January, loss estimates have
narrowed down to 8 cents for the current year from 11 cents over
the past 30 days.
You can get the rest of the stocks on this list by signing up now
for your 2-week free trial to the Research Wizard and start using
this screen in your own trading. Further, you can also create your
own strategies and test them first before taking the investment
plunge.
The Research Wizard is a great place to begin. It's easy to use.
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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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Ubiquiti Networks, Inc.
(UBNT) : Free Stock Analysis Report
Balchem Corporation (BCPC)
: Free Stock Analysis Report
Methode Electronics, Inc.
(MEI) : Free Stock Analysis Report
Chemed Corporation (CHE) :
Free Stock Analysis Report
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