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 four 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 four of the 11 stocks that passed the screen:
Cowen Inc. COWN: This New York, NY-based company provides investment banking, equity research, sales and trading, asset management and alternative asset management services. The Zacks Rank #3 (Hold) stock has gained 68.5% over the past three months compared with the industry’s 13.3% growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IMARA Inc. IMRA: Headquartered in Boston, MA, this is a clinical-stage biopharmaceutical company. The Zacks Rank #3 stock has gained 80.7% over the past three months compared with the industry’s 23.9% growth.
GAN Limited GAN: Based in London, the U.K., this company provides enterprise Software-as-a-Service solutions for online casino gaming and online sports betting applications. The Zacks Rank #3 stock has gained 108.1% since its inception on May 5, 2020, outperforming the industry’s 39% growth.
Getty Realty Corp. GTY: Headquartered in Jericho, NY, this is a real estate investment trust. This Zacks Rank #3 stock has gained 19.5% over the past three months compared with the industry’s 9.4% growth. The Zacks Consensus Estimate for its current-year earnings has risen 0.6% over the past seven days, reflecting analysts’ optimism over the company’s earnings growth potential.
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.
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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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Cowen Group, Inc. (COWN) : Free Stock Analysis Report
Getty Realty Corporation (GTY) : Free Stock Analysis Report
IMARA Inc. (IMRA) : Free Stock Analysis Report
GAN Limited (GAN) : Free Stock Analysis Report
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