Benzinga - by Zacks, Benzinga Contributor.
New analyst coverage greatly benefits investors by providing comprehensive data on stocks for an informed investment decision. Analysts possess information crucial for investors, and their insights are highly valued. Without them, stocks may be misinterpreted and potentially mispriced.
Recently, several stocks, including GigaCloud Technology Inc. (NASDAQ: GCT) and Global Ship Lease, Inc. (NYSE: GSL), have caught the attention of analysts, signaling potential value and growth opportunities for investors.
Analysts do not randomly choose which stocks to cover. Typically, the decision to add a stock to their coverage is driven by significant investor interest or prospects associated with it.
A noteworthy observation is that stocks tend to experience gradual upward price movements when they receive new analyst coverage compared with the price changes seen with existing analyst coverage. The extent of this price movement is influenced by the recommendations of the new analysts. Positive recommendations like "Buy" and "Strong Buy" result in a more substantial positive price reaction 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 more attention to the stock. Additionally, any fresh information attracts portfolio managers, who may decide to build a position in the stock.
Instead of focusing 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 formulate a prudent strategy, it is worthwhile to concentrate on the number of analyst recommendations that have increased in recent weeks. This approach can provide valuable insights into the overall sentiment and potential trajectory of a stock.
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 two out of the six stocks that passed the screen: GigaCloud: Headquartered in El Monte, CA, this company offers comprehensive B2B e-commerce solutions for large parcel merchandise both in the United States and globally. GCT shares have gained 65% so far this year, outperforming the industry's 19% rise.
GCT currently sports a Zacks Rank #1 (Strong Buy). Earnings per share estimates for GCT have moved north to $3.25 from $2.98 for 2024 over the past 60 days, depicting analysts' optimism over the company's prospects. Earnings surpassed the Zacks Consensus Estimate in all of the trailing four quarters, the average surprise being 47.9%. GCT has a VGM Score of A.
Global Ship Lease: Based in Athens, Greece, this company specializes in owning and chartering containerships, offering fixed-rate charters to container shipping companies around the world. GSL shares have gained 43.7% so far this year, outperforming the industry's 15.7% growth.
GSL currently carries a Zacks Rank #3 (Hold). EPS estimates for GSL have moved north to $9.62 from $9.40 for 2024 over the last 60 days. Earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 5.7%.
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.
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.
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