Go with what you know. The maxim may apply to Wall Street research coverage, as companies concentrate coverage of bigger, more highly capitalized names. Bigger stocks with wide name recognition can enjoy a particular advantage over their smaller brethren: the high degree of analytical coverage from Wall Street firms. The reason: Wider coverage ensures a greater degree of investor awareness of these companies' shares, which can help foster demand for these equities.
While big names like General Electric (GE), Microsoft (MSFT), and Apple (AAPL) are followed by a dozen or more analysts, smaller outfits have to content themselves with far fewer observers.
That's not to say that research outfits don't follow a wide range of stocks. We at Standard & Poor's issue equity rankings on nearly 1,600 stocks—some of which are not widely followed by other shops.
This week, we wanted to find out some promising names among the under-covered. We started with a little "home cooking"—the list of those issues followed by S&P equity analysts that are ranked 5 STARS (strong buy). Stocks with that designation are expected by S&P analysts to outperform the S&P 500-stock index (on a total return basis) by a wide margin over the coming 12 months, with the shares rising in price on an absolute basis.
Then we turned our gaze down Wall Street. We looked for names from that list followed by just three or fewer Wall Street analysts providing current fiscal-year estimates (not including S&P).
When we ran the screen, these seven names appeared. Perhaps unsurprisingly, the U.S.-traded American Depositary Shares of non-U.S. companies were prominent in the output.
|AU Optronics ADS (AUO)|
|Bayer ADS (BAY)|
|Hutchison Telecom Intl. ADS (HTX)|
|Reuters Group ADS (RTRSY)|
|Statoil ADS (STO)|
|Tele Norte Leste Participacoes (TNE)|