Most people think being ignored or unpopular is a bad thing. But
when it comes tostocks , it's a blessing in disguise.
There are about 63,000 publicly-traded companies in the world,
according to data from Bloomberg. Of these 63,000, about 15,000 are
based in the United States, with about 5,000 being traded on public
exchanges and the other 10,000 traded in various over-the-counter
But while many large, well-known companies such as
Apple Inc. (Nasdaq: AAPL)
Google (Nasdaq: GOOG)
Amazon (Nasdaq: AMZN)
have more than 30 analysts providing coverage, the majority of
public companies are being almost totally ignored by the analyst
community, with little to no coverage at all.
And like I said before, that's a good thing for investors.
That's because stocks with high analyst coverage have usually
already cycled through the early stages of rapid growth that
produce big gains for early investors. These high levels of growth
and big gains frequently trigger more interest from investors,
which in turn make it much more profitable forinvestment research
companies to create and sell research reports in high demand.
On the institutional side, stocks with high analyst coverage
also tend to get pitched more often to big mutual- and hedge-fund
managers. If the biggest players on the Street have already
initiated big positions, then that leaves less capital on the
sidelines to pushshares higher.
Stocks withlots of analyst coverage also suffer from more
pricing efficiency. With more than 30 analysts covering the most
popular stocks, the river of information makes it difficult to
shock themarket with anearnings surprise or hot new product.
Stocks with little analyst coverage are the exact opposite.
These ignored stocks benefit from little information flow that
frequently leads to shares being mispriced before a groundbreaking
product or quarter is announced.
When you add it all together, it's easy to see why stocks with
little analyst coverage are golden opportunities waiting to be
Here are eight stocks from the MidCap 400Index with the least
analyst coverage, providing investors with an opportunity to get in
before the masses and score outsized gains.
Out of the eight, I particularly like
Universal Corp (
Tower Watson (
because both stocks look extremely undervalued relative to its
peers and the market.
1. Universal Corp.
Universal Corp is a global leaf tobacco processor and merchant with
amarket cap of just $1.3 billion and just one analyst providing
coverage. That's a far cry from industry mega-giant
Phillip Morris (
, which has 13 covering analysts and a huge cap of $147
The company has performed well in the past 12 months, climbing
more than 18% and recently hitting a new all-time high. But in
spite of these gains, Universal still remains a mystery to most
investors, on display with a highly discounted valuation. As it
stands, Universal trades with a forward price-to-earnings (P/E )
ratio of 11, a sharp discount to its peer average of 14.
If thestock traded in line with their peers, then Universal
would jump to $68, a 32% premium from current levels. And when you
add in an outsized 3.8%yield , then thismid cap with little analyst
coverage offers a nice combination of value and income.
2. Towers Watson & Co.
Towers Watson & Co. is a professional services company
specializing in human capital and financial consulting services.
With a market cap of $4.3 billion, Towers Watson is on the high end
of the mid-cap range.
The Street isn't paying much attention to the stock, with only
two analysts providing coverage. Shares are down about 3% in the
past year, underperforming the market as large-capdividend stocks
fell into favor with investors.
Looking forward, the two analysts who do cover this stock are
projectingearnings of $4.97 per share in 2013. This has shares
trading at just 10 timesforward earnings , a sharp discount to its
10-year and peer average of 15 times.
Risks to Consider:
Stocks with less analyst coverage can frequently be mispriced
due to a lack of information and earnings transparency. This can
also drive volatility under weaker or uncertain economic
Action to Take -->
Savvy investors who want to beat the crowd are set to make
big gains from any of the eight stocks mentioned above,
particularly Universal Corp. and Towers Watson.