The initiation of coverage by new analysts can provide substantial advantages to investors and exert a notable impact on financial markets amid volatility ahead of the 2024 election. Analysts provide essential insights into potential policy changes, market dynamics and economic conditions, enabling investors to make informed decisions amid financial market volatility.
Analysts typically possess specialized knowledge and expertise in particular industries or sectors. Through thorough research and analysis, they offer investors critical insights into a company’s financial health, growth potential, competitive standing, and industry trends — insights that are often difficult for individual investors to acquire independently.
Eagle Bancorp, Inc. (EGBN – Free Report) and ImmunityBio, Inc. (IBRX – Free Report) are two stocks that have witnessed new analyst coverage lately. These are, therefore, expected to attract investor attention.
Coverage initiation on 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 the company coming under the microscope definitely holds some value.
Do analysts create value for companies by initiating coverage? Of course, they do because they play an important intermediary role with their extensive access to relevant data. Many investors have immense faith in analysts’ research as they fear that a lack of information might trigger inefficiencies.
Obviously, stocks are not randomly chosen to cover. A 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 like 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.
Needless to say, the average change in broker recommendation is preferable to a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations from new analysts. Stocks typically see an upward price movement with 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 compared with Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
Now, if an analyst issues a new recommendation on a company that has very little or no existing coverage, investors start paying more attention to it. Also, any further 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
The Number of Broker Ratings is 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 two out of the four stocks that passed the screen:
Eagle Bancorp: Based in Bethesda, MD, this is the bank holding company for EagleBank. EGBN currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
EGBN shares have gained 31.7% over the past three months, outperforming the industry’s 8% rise. Earnings per share estimates for EGBN have moved north to $1.68 from $1.46 for 2024 in the past 30 days, depicting analysts’ optimism over the company’s prospects.
ImmunityBio: This is a San Diego, CA-based clinical-stage biotechnology company. IBRX currently carries a Zacks Rank #3 (Hold).
IBRX shares have gained 11.3% over the past three months against the industry’s 1% decline. The estimated figure for the company’s bottom line indicates a 13.1% improvement from a year ago.
You can get the remaining stock on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your 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 of 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
