The recent increase in analyst coverage is of great significance for investors navigating the dynamic landscape of investments.
Dream Finders Homes, Inc. (DFH – Free Report) , Worthington Enterprises, Inc. (WOR – Free Report) and ePlus inc. (PLUS – Free Report) are three stocks that have recently come under the analytical spotlight, signaling potential opportunities for judicious investors.
When analysts initiate coverage on a stock, it is more than a mere endorsement — it is a spotlight on value. Investors are drawn to such stocks, believing that the scrutiny from analysts unveils hidden potential. Analysts, as intermediaries, hold a crucial role with their access to vital information, mitigating the fear of inefficiencies caused by lack of data.
Stocks chosen for coverage are not arbitrary; they are carefully selected, reflecting a positive outlook envisioned by the analysts. Ratings on newly covered stocks often lean more favorably than those on continuously covered stocks, emphasizing the attractiveness of these opportunities.
The impact on stock prices is undeniable. The entry of new analysts typically propels stocks upward, surpassing the effects of a rating upgrade under existing coverage. Positive recommendations such as Buy and Strong Buy trigger substantial price reactions, while Sell recommendations are rarely initiated by analysts.
Investors keen on identifying promising opportunities should turn their attention to stocks gaining increased analyst coverage. This would be a strategic move, as stocks with heightened analyst scrutiny tend to experience more significant price movements. Notably, the average change in broker recommendation holds more weight than a singular recommendation change, providing a more reliable indicator for investors.
The strategy is clear — focus on stocks attracting increased analyst coverage in recent weeks. These stocks not only capture investor attention but also stand to benefit from heightened interest by portfolio managers. In the ever-evolving landscape of investments, leveraging the insights provided by new analyst coverage emerges as a valuable tool for making informed and lucrative investment decisions.
Screening Criteria
The 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 the four stocks that passed the screen:
Dream Finders Homes: This Jacksonville, FL-based homebuilder shares have gained 175.4% over the past year, outperforming the industry’s 56.8% rise.
DFH — a Zacks Rank #1 (Strong Buy) company — has an expected revenue growth rate of 12.2% year over year for 2024. DFH’s earnings per share (EPS) estimates for 2024 have increased to $2.81 from $2.62 over the past 60 days. Earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 131.6%. Earnings for 2024 are expected to grow 12.2% year over year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Enterprises: Based in Columbus, OH, Worthington operates as an industrial manufacturing company. Shares of WOR have declined 2.7% compared with the industry’s 4.7% decline.
WOR has a Zacks Rank #3 (Hold). The EPS estimates for fiscal 2024 have increased to $5.60 from $5.55 in the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 22.1%.
ePlus: Based in Herndon, VA, ePlus and its affiliated companies deliver information technology (IT) solutions designed to help organizations enhance their IT infrastructure and streamline supply chain processes, both within the United States and globally. Shares of PLUS have gained 54.2% over the past year, outperforming the industry’s 22.9% rise.
PLUS has a Zacks Rank #3. The EPS estimates for fiscal 2024 indicate 5.2% year-over-year growth. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 24.1%.
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.
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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
