The initiation of coverage by new analysts can be highly advantageous for investors and has a substantial impact on financial markets. Analysts typically possess in-depth knowledge and expertise in particular industries or sectors. Through thorough research and analysis, they furnish investors with valuable perspectives on a company’s financial well-being, potential for growth, competitive standing and prevailing industry trends. Such insights can be challenging for individual investors to acquire independently.
Mission Produce, Inc. AVO, iRobot Corporation IRBT and Old Republic International Corporation ORI are three stocks that have witnessed new analyst coverage lately, signaling their value and growth opportunities for investors.
Analysts don’t randomly choose which stocks to cover. Their decision is typically driven by significant investor interest or promising prospects associated with a particular stock.
An interesting observation is that when stocks receive new analyst coverage, they often experience gradual upward price movements compared to those already covered by analysts. The magnitude of this price movement is influenced by the recommendations made by the new analysts. Positive recommendations like “Buy” and “Strong Buy” tend to result in more substantial positive price reactions 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 increased attention to the stock. Additionally, portfolio managers may become interested in building positions in such stocks due to the fresh information.
Rather than focusing solely 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 create a prudent investment strategy, it’s worthwhile to concentrate on the number of analyst recommendations in recent weeks. This approach can offer valuable insights into the overall sentiment and potential trajectory of a stock, helping investors make well-informed 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 seven stocks that passed the screen:
Mission Produce: Based in Oxnard, CA, sources, produces, packs, distributes and markets avocados principally in the United States and internationally. AOV shares have gained 46.8% over the past six months, outperforming the industry’s 3.1% decline.
Earnings per share (EPS) estimates for AVO have moved north to 35 cents from 32 cents for fiscal 2024 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 surprise being 94.9%. AVO currently carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of B.
Old Republic International: Headquartered in Chicago, IL, this company specializes in insurance underwriting and related services, operating primarily in the United States and Canada. ORI shares have gained 12.4% over the past six months compared with the industry’s 17.8% growth.
EPS estimates for ORI have moved north to $2.73 from $2.70 for 2024 over the last 30 days. Earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average surprise being 6.6%. ORI currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.
iRobot: Based in Bedford, MA, this company is one of the leading manufacturers of robots worldwide. IRBT shares have lost 63.3% over the past six months compared with the industry’s 2.1% decline.
That said, loss per share estimates for IRBT have narrowed to $3.04 from $3.50 for fiscal 2024 over the last 30 days. The company’s bottom line in the last reported quarter surpassed the Zacks Consensus Estimate by 24.6%. IRBT currently carries a Zacks Rank #2.
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.
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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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