New Analyst Coverage Puts Spotlight on These 4 Stocks

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 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 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:

Camtek Ltd. CAMT designs, develops, manufactures, and markets automatic optical inspection systems and related products. The stock sports a Zack Rank #1 (Strong Buy) and has gained more than 19% in the past six months, outperforming the industry’s 9.5% rally. Earnings estimates have moved 11.4% north for 2018 and 8.8% for 2019 in the last 30 days, depicting the stock’s potential to scale higher. Full-year 2018 and 2019 earnings for the company are expected to grow 81.5% and 25.5%, respectively.

Progenics Pharmaceuticals, Inc. PGNX develops medicines and other technologies to treat cancer in the United States and internationally. The stock carries a Zacks Rank #3 (Hold) and has advanced 19.9% in the last six months, faring much better than its industry’s 6.8% decline. Loss estimates for 2018 have narrowed to 72 cents per share from 83 cents over the last 60 days.

Denny's Corporation DENN is one of the largest restaurant companies. Shares of the company, carrying a Zacks Rank #3, have gained more than 29% in the past six months, comparing favorably with the industry’s 2% growth. The Zacks Consensus Estimate for earnings has moved 14% up for 2018 and 12.9% for 2019 over the past 30 days.

Dropbox Inc. DBX provides a collaboration platform worldwide. This Zacks Rank #3 stock has seen earnings estimates move up 26.7% for 2018 and 30.4% for 2019 over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

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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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Camtek Ltd. (CAMT) : Free Stock Analysis Report
 
Progenics Pharmaceuticals Inc. (PGNX) : Free Stock Analysis Report
 
Denny's Corporation (DENN) : Free Stock Analysis Report
 
DROPBOX INC-A (DBX) : Free Stock Analysis Report
 
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