Zacks.com Featured Expert Kevin Matras Highlights: Arena Pharmaceuticals, GSI Commerce and Companhia Vale do Rio Doce

Business Wire, Sept 14, 2005

CHICAGO -- Kevin Matras shows you why stocks with new analyst coverage are stocks you want to have. Stocks in this week's article are: Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), GSI Commerce, Inc. (NASDAQ:GSIC) and Companhia Vale do Rio Doce (NYSE:RIO). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109 E[acute accent]Screen of the Week written by Kevin Matras of Zacks Investment Research: E[acute accent]If you're a regular reader of this article, you know that Kevin Matras is not a big fan of Broker Recommendations. This is largely because of their overwhelmingly bullish bias. E[acute accent]But Broker Recommendations do have their place. (Although Kevin notes that in general, the changes in the average broker recommendation is a better indicator than the actual recommendation itself.) E[acute accent]Anyway, what Kevin wants to talk about today, are companies that receive new analyst coverage. E[acute accent]One of the things that generates analyst coverage is investor interest. And as new coverage is initiated, it becomes more visible, which in turn means potentially more demand (read higher prices). This is often the case because analysts almost always initiate coverage with a positive recommendation. (Why write a research report on a company not widely followed only to say it stinks?) And when it comes to companies with little to no analyst coverage, that one new recommendation can sometimes give portfolio managers the validation they need to build a position. (And the more money they can invest, the more they can potentially influence prices.) E[acute accent]The best way to use this information is to look for companies whose analyst coverage has increased over the last four weeks. Simply look at the number of analyst recommendations now in comparison to the number of analyst recommendations four weeks ago. An increase in coverage is bullish whereas a decrease in coverage is bearish. It's typically more bullish if the increase went from none to one or if the coverage was minimal to begin with. (Going from 25 to 26 isn't going to have the same impact because that 26th analyst isn't discovering something 'new'.) But increased coverage is better than decreased coverage -- assuming the coverage is positive of course.

Here's a screen to try:

--  Average Broker Rating 4 weeks ago less than or equal to 5
    (No more than five analysts were covering the stock four weeks
    ago.)

--  Average Broker Rating now greater than or equal to 6
    (There are at least six analysts covering the stock now.)

--  Average Broker Rating less than Average Broker Rating 4 weeks ago
    (By 'less than', Kevin means 'better than' four weeks ago.)

--  Average Broker Rating less than or equal to 3
    (Kevin is not that concerned about the rating itself. But since
    analysts recommendations tend to be bullishly biased, he'd prefer
    to not have them be 'bearish'.)

And for good measure ...

--  % Change in Q(1) Estimates greater than or equal to 0 and ...

--  % Change in F(1) Estimates greater than or equal to 0
    (Companies that receive upward estimate revisions have a tendency
    of receiving even more upward estimate revisions. This, in
    combination with the stock's increased visibility due to 'new'
    coverage, can be quite powerful.)

--  And Kevin is applying all of the above parameters to stocks with
    Prices greater than or equal to 5 (most money managers won't even
    look at a stock under $5) and Average Daily Volume greater than or
    equal to 50,000 shares (if there's not enough volume, even
    individual investors won't want it).

E[acute accent]There are 16 stocks that made it thru this week's screen (for the week of 9/12/05.) Here are three of them:

E[acute accent]ARNA Arena Pharmaceuticals, Inc.

E[acute accent]GSIC GSI Commerce, Inc.

E[acute accent]RIO Companhia Vale do Rio Doce

E[acute accent]Get the rest of the stocks on this list and see what new stocks the analysts are talking about. And don't stop there. Try finding companies with no coverage four weeks ago that are finally being looked at today. E[acute accent]Most screeners won't let you search for the number of analysts covering a stock, let alone comparing the amount of coverage they had weeks or even months ago. The same goes for changes in the Average Broker Rating and Estimate Revisions. But you can with the Research Wizard. And you can backtest it all. Find out how to pick the right stocks right now by learning more about our free trial to the Research Wizard stock picking and backtesting program. http://at.zacks.com/?id=111 E[acute accent]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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