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5 Stocks for Higher Returns on New Analyst Coverage

Investors depend on research work provided by analysts as they fear that lack of information while exploring on their own might trigger errors. Here, analysts play a vital intermediary role as they have extensive access to relevant data.

Meanwhile, massive volatility has been dominating the stock market headlines of late. Given the situation, investors may look for stocks that recently received new analyst coverage. The logic behind this is that analysts do not add a stock to their coverage randomly. New coverage on a stock is usually the result of huge investor focus on it or its prospects.

Employers Holdings, Inc. EIG, CVR Energy, Inc. CVI, Oil States International, Inc. OIS, Archrock, Inc. AROC and U.S. Silica Holdings, Inc. SLCA are some stocks that have seen new analyst coverage lately and are therefore expected to attract investors' attention.

Coverage initiation of a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that a company coming under the microscope definitely has some value.

Obviously, stocks are not randomly chosen to cover. New coverage on a stock 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 their ratings on continuously covered stocks.

It is needless to say, the average change in broker recommendation is more preferable than a single recommendation change.

Influence Stock Price

The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with a new analyst coverage compared to what is 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.

Now, if an analyst gives a new recommendation on a company that has very little 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.

Below, we have selected five stocks that have seen increased analyst coverage over the past 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).

Here are five of the nine stocks that passed the screen:

Employers Holdings: Based in Reno, NV, EIG operates in the commercial property and casualty insurance industry, primarily in the United States.

EIG currently carries a Zacks Rank #1 (Strong Buy). The stock has gained 18.6% over the past six months, outperforming the industry’s 8% growth. Earnings estimates for 2023 indicate 5.8% growth from the year-ago period. Earnings estimates for 2023 have increased to $3.10 per share from $3.00 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

CVR Energy: Based in Sugar Land, TX, CVR Energy is an independent refiner and marketer of high-value transportation fuels and, through a limited partnership, a producer of ammonia and urea ammonia nitrate fertilizers.

CVI currently carries a Zacks Rank #1. The stock has gained 17.5% over the past six months, outperforming the industry’s 17.2% growth. Earnings estimates for 2023 have increased to $3.45 per share from $2.80 per share over the past 30 days.

Oil States International: Based in Houston, TX, OIS provides engineered capital equipment and products for the energy, industrial and military sectors worldwide.

OIS currently carries a Zacks Rank #2 (Buy). The stock has gained 107.1% over the past six months, outperforming the industry’s 22.5% growth. Earnings estimates for 2023 indicate 333.3% growth from the year-ago period. Earnings estimates for 2023 have increased to 35 cents per share from 30 cents per share over the past seven days.

Archrock: Houston, TX-based AROC operates as an energy infrastructure company in the United States.

AROC currently carries a Zacks Rank #2. The stock has gained 45.7% over the past six months, outperforming the industry’s 35.3% growth. Earnings estimates for 2023 indicate 110.7% growth from the year-ago period. Earnings estimates for 2023 have increased to 59 cents per share from 33 cents per share over the past 30 days.

U.S. Silica Holdings: Based in Katy, TX, U.S. Silica Holdings makes and markets commercial silica, a specialized mineral, to a variety of attractive end markets in the United States.

SLCA currently carries a Zacks Rank #3 (Hold). The stock has gained 2.8% over the past six months, underperforming the industry’s 19.8% growth. That said, earnings estimates for 2023 have increased to $1.72 per share from $1.27 per share over the past 30 days. Earnings estimates for 2023 indicate 45.8% growth from the year-ago period.

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.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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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