Q. ''What does it mean when a brokerage firm initiates coverage on a stock? How should you interpret this news relative to your investment?''
A. When a brokerage firm picks up coverage on a stock, it essentially begins following a company's progress. It moniters the company's balance sheet, corporate news and hirings, and provides earnings projections and investment recommendations (such as 'buy', 'market perform', etc.) on the stock.
The decision to pick up coverage is usually made because a brokerage is doing future business with the company (i.e., placing a secondary offering or raising other forms of capital), or making a market in the stock.
So is it good news? Yes. Usually. A brokerage is unlikely to initiate coverage on a company if bad news is about to develop. So it's unlikely a newly covered stock would, say, report a bad quarter or lose a key employee.
In fact, in some instances it can be extremely positive for a company to have coverage initiated by a brokerage firm, especially if the company is smaller and doesn't have a significant institutional following.
Coverage can provide added marketability for the shares. It can also provide catalysts that move the shares higher, as, for example, when the brokerage increases earnings estimates or upgrades its rating for the stock.
So the bottom line here is good news. In general, when coverage is initiated on a company in which you own stock, you can view it as a positive!
Don't 'cha love good news?
Chris Bulkey
Senior Research Analyst
individualinvestor.com
Rf iionline.com |
