4 Stocks to Reap Solid Returns as Analysts Initiate Coverage
Increased analyst coverage over the past few weeks might lead to solid price appreciation for stocks like Preferred Apartment (APTS), GCM (GCMG), Aadi...
New analyst coverage unearths extensive data on stocks for investors. As analysts are privy to vital information, which is crucial for investment decisions, they are much relied on as a lack of information creates chances of misinterpretation (over- or under-valued).
Analysts don’t add a stock to their coverage randomly. New coverage on a stock is usually the result of huge investor focus on it or its promising prospects.
Interestingly, stocks typically see an incremental upward price movement with new analyst coverage compared to what they witness with continuation of existing analyst coverage. Of course, the price movement depends on the recommendations from the new analysts. Positive recommendations — Buy and Strong Buy — lead to a significant positive incremental price reaction than Strong Sell, Sell or Hold recommendations.
Moreover, if an analyst provides a new recommendation on a company that has limited or no analyst coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.
However, one should preferably look for the average change in broker recommendation rather than a single recommendation change. Then again, an upgrade, an initiation or even increased coverage is equally important.
Keeping this in mind, it’s a good strategy to focus on the number of analyst recommendations that have increased over the last few weeks.
Below, we have selected four stocks that have seen increased analyst coverage over the last few weeks.
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 volume isn’t enough, it will not attract individual investors).
Here are four of the eight stocks that passed the screen:
Preferred Apartment Communities, Inc. APTS: Based in Atlanta, this is a real estate investment trust. This Zacks Rank #1 (Strong Buy) stock has gained 58.9% so far this year compared with the industry’s 35.2% growth. Earnings estimates for the current year have moved up 17.6% over the past 30 days.
GCM Grosvenor Inc. GCMG: Headquartered in Chicago, this company is an alternative asset management solutions provider holding a Zacks Rank #2 (Buy). Although the stock has underperformed its industry year to date, earnings estimates for the current year have moved up 7.5% over the past 30 days, depicting analysts’ optimism over its prospects. The company’s earnings are expected to grow 16.3% in 2021.
Aadi Bioscience, Inc. AADI: Based in Pacific Palisades, CA, this is a clinical-stage biopharmaceutical company. This Zacks Rank #3 (Hold) stock has gained 90.1% so far this year compared with the industry’s 0.8% growth. The company’s bottom line is expected to grow 41.3% in 2021. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vivint Smart Home, Inc. VVNT: Headquartered in Provo, UT, this company engages in the sale, installation, servicing, and monitoring of smart home and security systems. The stock, which currently carries a Zacks Rank #3, has underperformed its industry year to date. Nonetheless, loss estimates for the current year have narrowed to $1.44 from $2.03 per share over the past 30 days. The company’s bottom line is expected to improve 43.8% in 2021.
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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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Preferred Apartment Communities, Inc. (APTS): Free Stock Analysis Report
Vivint Smart Home, Inc. (VVNT): Free Stock Analysis Report
GCM Grosvenor Inc. (GCMG): Free Stock Analysis Report
Aadi Bioscience, Inc. (AADI): Free Stock Analysis Report
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