Investors benefit greatly from new analyst coverage, as it provides extensive data on stocks, enabling them to make informed investment decisions. Analysts have access to vital information that is crucial for investors. Their insights are highly valued, as the lack of such information can lead to misinterpretation and potentially over- or under-valued stocks.
Recently, a number of stocks, including MSA Safety Incorporated MSA, Frontline plc FRO and The Andersons, Inc. ANDE, have garnered the attention of analysts, indicating potential value and growth for investors.
The decision to add a stock to their coverage is not random for analysts. Usually, new coverage on a stock is a response to significant investor interest or promising prospects associated with that stock.
A noteworthy observation is that stocks tend to experience gradual upward price movements when they receive new analyst coverage compared with the price changes seen with existing analyst coverage. The extent of this price movement is influenced by the recommendations of the new analysts. Positive recommendations like “Buy” and “Strong Buy” result in a more substantial positive price reaction than “Strong Sell,” “Sell,” or “Hold” recommendations.
When an analyst provides a new recommendation for a company with limited or no prior analyst coverage, investors pay more attention to the stock. Additionally, any fresh information attracts portfolio managers, who may decide to build a position in the stock.
Instead of focusing on a single recommendation change, it is advisable to consider the average change in broker recommendations. Upgrades, initiations and increased coverage by multiple analysts carry equal significance in assessing a stock’s potential.
To formulate a prudent strategy, it is worthwhile to concentrate on the number of analyst recommendations that have increased in recent weeks. This approach can provide valuable insights into the overall sentiment and potential trajectory of a stock.
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).
Here are three out of four stocks that passed the screen:
MSA Safety: Based in Cranberry Township, PA, this company develops, manufactures and supplies safety products and software that help protect people and facility infrastructures around the world. The company’s shares have gained 25.5% year to date (YTD), comparing favorably with the industry’s 0.7% decrease.
MSA’s earnings estimates for 2023 have increased to $6.54 per share from $6.00 over the past 30 days. This depicts analysts’ optimism about the company. The estimated figure calls for 15.8% year-over-year growth. The company’s earnings topped the consensus mark in each of the last four quarters, the average being 21%. Currently, MSA sports a Zacks Rank #1 (Strong Buy).
Frontline: Based in Limassol, Cyprus, Frontline engages in the seaborne transportation of crude oil and oil products worldwide. The company’s shares have gained 52.4% YTD, outperforming the industry’s 6.9% rise.
FRO’s earnings estimates for 2023 have increased to $3.04 per share from $2.81 over the past 60 days. The estimated figure calls for 92.4% year-over-year growth. Currently, FRO sports a Zacks Rank #1.
The Andersons: Based in Maumee, OH, this company operates in trade, renewables and plant nutrient sectors in the United States and internationally. The company’s shares have gained 49.6% YTD, outperforming the industry’s 6.8% growth.
ANDE’s earnings estimates for 2023 have increased to $2.90 per share from $2.38 over the past 30 days. The company’s earnings topped the consensus mark in each of the last four quarters, the average being 64.4%. ANDE currently carries a Zacks Rank #1.
The Andersons, Inc. (ANDE): Free Stock Analysis Report
This article originally appeared on Zacks
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