Analyst ratings are a great way to gauge what the market currently thinks about a stock's outlook -- if you're considering the stock for purchase, knowing whether you're going with or against other investors is an important starting point.
But this starting point can be improved. Groups of analysts whose ratings have historically predicted stock movements are theoretically more likely to predict future movements. Looking for these "predictive analysts," we compiled analyst ratings from Reuters to find groups of analysts that have rightfully predicted stock market movements over the last three months.
The screen
Beginning with companies that have seen significant net insider buying over the last six months, we screened these stocks for those being followed by groups of predictive analysts.
From Reuters ratings presented on a linear scale (with 1 = "Strong Buy" and 5 = "Strong Sell"), we sliced the data of stocks seeing significant net buying from insiders into three monthly time periods and identified the groups of analysts that have shown predictive value over two consecutive time periods.
We further narrowed down the list by only focusing on those stocks that have seen bullish trends in recent analyst opinion.
Although past performance is no guarantee of future results, the recent accuracy of these analyst ratings suggests their opinions may be a helpful starting-off point for your own analysis.
Insiders are buying these stocks while predictive analysts expect them to outperform -- do you think these stocks are in a strong position to move higher?
List sorted by net insider purchases as a percent of share float. (Click here to access free, interactive tools to analyze these ideas.)
1. Everest Re Group (NYSE: RE ) : Underwrites reinsurance and insurance in the United States, Bermuda, and international markets. Market cap of $4.76B. Net insider shares purchased over the last six months at 1.25M, which is 2.92% of the company's 42.86M share float. Mean average rating changed from 2.36 to 2.42 between 08/15/11 and 09/14/11 (bearish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of -3.32%.
Analysts also got it right between 09/14/11 and 10/14/11, with the mean rating changing from 2.42 to 2.33 (bullish change). Over the following month, the stock generated an alpha of 10.4% relative to the S&P 500 index, as predicted by the analysts.
This same group of analysts now expect the stock to underperform in the future, with the mean rating changing from 2.33 to 2.42 between 10/14/11 and 11/13/11 (i.e., bearish change).
2. Seattle Genetics (Nasdaq: SGEN ) : Focuses on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer and autoimmune diseases in the United States. Market cap of $1.86B. Net insider shares purchased over the last six months at 1.48M, which is 1.30% of the company's 113.13M share float. Mean average rating changed from 2.25 to 2.13 between 08/15/11 and 09/14/11 (bullish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 10.1%.
Analysts also got it right between 09/14/11 and 10/14/11, with the mean rating changing from 2.13 to 2.35 (bearish change). Over the following month, the stock generated an alpha of -24.6% relative to the S&P 500 index, as predicted by the analysts.
This same group of analysts now expect the stock to underperform in the future, with the mean rating changing from 2.35 to 2.56 between 10/14/11 and 11/13/11 (i.e., bearish change).
3. Overseas Shipholding Group (NYSE: OSG ) : Engages in the ocean transportation of crude oil and petroleum products. Market cap of $437.24M. Net insider shares purchased over the last six months at 73.68K, which is 0.31% of the company's 23.43M share float. Mean average rating changed from 3.06 to 3.11 between 08/15/11 and 09/14/11 (bearish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of -18.49%.
Analysts also got it right between 09/14/11 and 10/14/11, with the mean rating changing from 3.11 to 3.31 (bearish change). Over the following month, the stock generated an alpha of -8.06% relative to the S&P 500 index, as predicted by the analysts.
This same group of analysts now expect the stock to underperform in the future, with the mean rating changing from 3.31 to 3.38 between 10/14/11 and 11/13/11 (i.e., bearish change).
4. News Corp. (Nasdaq: NWSA ) : Operates as a diversified media company worldwide. Market cap of $43.05B. Net insider shares purchased over the last six months at 3.64M, which is 0.17% of the company's 2.14B share float. Mean average rating changed from 1.92 to 1.87 between 08/15/11 and 09/14/11 (bullish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 3.03%.
Analysts also got it right between 09/14/11 and 10/14/11, with the mean rating changing from 1.87 to 1.88 (bearish change). Over the following month, the stock generated an alpha of -2.8% relative to the S&P 500 index, as predicted by the analysts.
This same group of analysts now expect the stock to underperform in the future, with the mean rating changing from 1.88 to 1.96 between 10/14/11 and 11/13/11 (i.e., bearish change).
5. Western Alliance Bancorporation (NYSE: WAL ) : Provides various banking and related products and services in Nevada, Arizona, California, and Colorado. Market cap of $510.51M. Net insider shares purchased over the last six months at 95.44K, which is 0.14% of the company's 69.18M share float. Mean average rating changed from 2.25 to 2.19 between 08/15/11 and 09/14/11 (bullish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 8.82%.
Analysts also got it right between 09/14/11 and 10/14/11, with the mean rating changing from 2.19 to 2.18 (bullish change). Over the following month, the stock generated an alpha of 1.98% relative to the S&P 500 index, as predicted by the analysts.
This same group of analysts now expect the stock to underperform in the future, with the mean rating changing from 2.18 to 2.2 between 10/14/11 and 11/13/11 (i.e., bearish change).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford. does not own any of the shares mentioned above. Ratings sourced from Reuters, insider data sourced from Yahoo! Finance.
RSS Headlines
Fool UK