When Do Undiscovered Stocks Become Mainstream?

July 6, 2007

I had to laugh when I read the top of the cover of the latest edition of Kiplinger’s Personal Finance magazine, 7 UNDISCOVERED STOCKS.  If they’re advertised on the front page of Kiplinger’s are they really undiscovered?

Undiscovered No More
Of course the reason this headline sounds so appealing is that everyone wants to uncover a hidden gem in order to buy shares at a low price before other people discover the company’s profit potential and drive up the stock price.  I don’t know how many other people subscribe to Kiplinger’s and don’t know how many of them have already received their magazine in the mail but I think it’s safe to say these companies are no longer undiscovered.

Ignored by Brokerages
The article reasons there are good returns to be made by finding stocks that are “under the radar”.  They define these as companies followed by two or fewer Wall Street analysts.  Since they’re not covered by Wall Street the investing public may not be aware of the company’s profit potential and the fact there may be a bargain lurking in the stock. The author then goes on to list seven undiscovered stocks that fit this criteria and cite examples of why they could be poised for growth in the next several years.

Stock Analysts Cheat Sheet
In many industries, reading trade publications is a good way to keep up on the latest and greatest.  I wonder how many stock analysts screen magazines like Kiplinger’s, Smart Money, or Money as a cheat sheet for stock research.  Maybe not many of them do but I would think at least a few analysts would pick up on stories like these.

General Investor Effect
Even if articles like “7 Undiscovered Stocks” don’t have any effect on stock analysts I would imagine that they do have an impact on the investing public.  After reading about undiscovered stocks, how many people will go out and place buy orders for these companies?  All these questions leave me wondering if stories like these are a good place to find investing ideas or whether people are better off just doing research themselves and finding their own “undiscovered stocks”?

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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