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5 Stocks in the Spotlight on New Analyst Coverage

Zacks

Coverage initiation on a stock by analyst(s) is a decisive tool in the investment circle as it offers critical information on a stock which is of great value to investors. There’s no denying that the lack of consistency in information creates inefficiencies that might result in misinterpretation of stocks.

Initiation of coverage by analysts usually depicts increased investor inclination. Investors, on their part, often assume that there is something in the stock that has attracted analyst attention. In other words, they believe that the company coming under the radar definitely has some value which can be tapped into.

Obviously, stocks are not arbitrarily chosen to cover. New coverage on a stock usually reflects an encouraging future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it.

However, we have noticed that the average change in broker recommendation is preferred over a single recommendation change.

Analyst Coverage & Price Movement

Interestingly, the price movement is generally a function of the recommendations 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 limited 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 nine stocks that passed the screen:

First Commonwealth Financial Corporation FCF, a bank holding company, has gained 27.5% in the last year, outperforming its industry’s gain of 11.7%. This Zacks Rank #2 (Buy) stock has seen earnings estimates move up 2.5% to 82 cents for the current year over the past 30 days. Positive earnings estimate revisions for 2017 indicate the stock’s potential for price appreciation.

Strayer Education Inc. STRA, a for-profit education company, has gained more than 40% in the last year, almost on par with its industry’s rise. The stock carries a Zacks Rank #3 (Hold) and has an expected earnings growth rate of 13.8% for 2017 and 12.7% for 2018. You can see tthe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Protagonist Therapeutics, Inc. PTGX is a clinical-stage biopharmaceutical company. The stock has climbed 60.3% in the last three months, while its industry declined 1.4%. The stock carries a Zacks Rank #3. The company’s current year’s loss estimates have narrowed to $3.66 from $3.74 over the last 90 days. It has an expected earnings growth rate of 36.9% for 2017.

Amtech Systems, Inc. ASYS manufactures and sells capital equipment and related consumables for use in fabricating solar cells, LED and semiconductor devices. The stock has gained more than 172% in the last one year, compared with its industry’s rise of 67.5%. The stock has seen earnings estimates move up 300% from 5 cents to 20 cents for the current year over the past 90 days. This Zacks Rank #3 stock also saw positive earnings estimate revision of 15.9% for the next year over the same time frame.

Columbia Property Trust, Inc. CXP operates as a real estate investment trust. The stock has gained more than 6% in the last three months, compared with its industry’s rise of 4.5%. The stock carries a Zacks Rank #3 and has an expected earnings growth rate of 64% for 2017 and 25.1% for 2018.

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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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