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5 Top Stocks to Buy on New Analyst Coverages

As analysts are the key information intermediaries in capital markets, initiation of coverage by them offers critical information on a stock that is of great value to investors.

Washington Federal, Inc. WAFD, HarborOne Bancorp, Inc. HONE, Ladder Capital Corp LADR, MGIC Investment Corporation MTG and KKR Real Estate Finance Trust Inc. KREF are a few stocks that have witnessed new analyst coverage lately. These, therefore, are expected to attract investor attention.

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 investor 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 five 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 also consider other relevant parameters to make it 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 the volume isn’t enough, it will not attract individual investors).

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Here are five out of the 13 stocks that passed the screen:

Washington Federal: Based in Seattle, WA, Washington Federal operates as the bank holding company for Washington Federal Bank, National Association that provides lending, depository, insurance, and other banking services in the United States.

WAFD currently carries a Zacks Rank #1 (Strong Buy). The stock has increased 11.9% year to date, outperforming the industry’s 33.2% decline. Earnings estimates for 2023 have increased to $4.32 per share from $3.58 per share over the past 30 days, depicting analysts’ optimism about the company’s prospects. The estimated figure calls for a 27.4% improvement from the year-ago period.

HarborOne Bancorp: Brockton, MA-based HarborOne Bancorp provides financial services and operates as the holding company for HarborOne Bank.

HONE stock currently carries a Zacks Rank #2. The stock has lost 6% over the past year against the industry’s 15.9% decline. Earnings estimates for 2023 have increased to $1.05 from $1.01 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

MGIC Investment: This Milwaukee, WI-based company provides private mortgage insurance, other mortgage credit risk management solutions, and ancillary services.

MTG currently carries a Zacks Rank #2. The stock has declined 8.1% over the past year, underperforming the industry’s 3.1% decline. Nonetheless, earnings estimates for 2023 have increased to $2.28 per share from $2.27 over the past seven days, depicting analysts’ optimism about the company’s prospects.

KKR Real Estate Finance Trust: Headquartered in New York, NY, this is a mortgage real estate investment trust. It focuses mainly on originating and acquiring senior loans secured by commercial real estate assets.

KREF currently carries a Zacks Rank #2. The stock has declined 20% year to date, outperforming the industry’s 35.7% decline. Earnings estimates for 2023 have increased to $1.97 per share from $1.94 over the past 30 days.

Ladder Capital: Ladder Capital is a New York, NY-based commercial real estate finance company.

LADR stock currently carries a Zacks Rank #2. The stock has lost 10.4% year to date versus the industry’s 35.7% decline. Earnings estimates for 2023 have increased to $1.18 from $1.08 per share over the past 30 days. The estimated figure calls for 4.4% growth from the year-ago period.

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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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MGIC Investment Corporation (MTG) : Free Stock Analysis Report
 
Washington Federal, Inc. (WAFD) : Free Stock Analysis Report
 
Ladder Capital Corp (LADR) : Free Stock Analysis Report
 
HarborOne Bancorp, Inc. (HONE) : Free Stock Analysis Report
 
KKR Real Estate Finance Trust (KREF) : Free Stock Analysis Report
 
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Zacks Investment Research