4 Stocks Set To Soar On New Analyst Coverage Amid Virus Crisis

Coronavirus fears have been dominating stock-market headlines of late, resulting in accelerated selloffs. Notably, the Dow Jones industrial average closed 12.9% down on Mar 16 — its worst percentage drop since 1987 — after President Donald Trump said the economy "may be" heading for recession. The broader Standard & Poor’s 500-stock index and the technology-rich Nasdaq suffered similar setbacks.

Now, as global stock markets are experiencing record levels of volatility, investors may look for stocks that have recently received new analyst coverage. The logic behind such action is that 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 gives a new recommendation on a company that has limited or no analyst coverage, investors start paying more attention to it. As analysts almost always initiate coverage with a positive recommendation. 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 mind, it’s a good strategy to focus on the number of analyst recommendations that have increased over the last few weeks.

Screening Criteria

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 consider other relevant parameters to make the strategy 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:

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Enova International, Inc. (NYSE:ENVA) , a technology and analytics company, currently sports a Zacks Rank #1 (Strong Buy). Earnings estimates for 2020 have moved 7.9% up over the past 60 days, depicting analyst optimism over the stock’s potential. Earnings for 2020 are expected to increase 13.7%. You can see Original post