To boldly go where no broker has gone before - profiting from under-researched stocks

Friday, Jul 19 2013 by
To boldly go where no broker has gone before  profiting from underresearched stocks

Broker research plays a hugely influential role in how companies are perceived by private and institutional investors but wide variations of coverage mean that some stocks simply slip under the radar. Under-researched shares, particularly at the smaller end of the market, often struggle to make themselves heard in all the noise but that doesn’t necessarily mean they should be avoided. In fact, digging deeper into these neglected firms can not only uncover some interesting opportunities but the very fact they are neglected at all is often an indicator that they could be poised to outperform. 

While using low analyst research as a contrarian indicator has only produced a modest 8.5% return from Stockopedia’s Neglected Firms screen so far this year there is plenty of research, notably by US academics Avner Arbel and Paul Strebel, to suggest that low levels of analyst research are connected to high excess returns over the long term. It is believed that this is caused by investors demanding a higher than normal risk premium for investing in these shares because of the lack of available information about them. 

In search of quality 

To try and get an edge on simply seeking out under-researched value stocks, we dabbled this week with a screen that finds neglected firms that display encouraging signs of both financial strength and high Stockopedia CompositeRanks. To do it, we looked for companies with low coverage but high Piotroski F-Scores of balance sheet health, which is a proxy for being in good financial shape. Meanwhile, the CompositeRank gives us a guide to which of these shares is achieving the highest ratings across a blend of ratios spanning Value, Growth, Quality and Momentum (you can read more about how that works here). 

In the UK, the highest ranked stock with low broker coverage is ship broking and consultancy business, Braemar Shipping Services (LON:BMS). Shares in Braemar have risen by around 9% to 415p so far this year despite challenging market conditions hampering its traditional broking business (see chart below). Efforts to diversify into technical services and logistics seems to have brought some stability and the group has said it will expand in these areas in the future. Out of the brokers that cover this stock, only two have issued recommendations (both are ‘buys’), including house broker Westhouse…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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Braemar Shipping Services plc is an international provider of services to shipping, energy and insurance industries. The Company's segments include Shipbroking, Technical, Logistics and Central. Its Shipbroking division operates through, Braemar ACM Shipbroking Limited, provides specialized shipbroking and consultancy services to international clients, which include tanker chartering for crude and fuel oil, refined petroleum products, petrochemicals, gas, chemicals and liquefied natural gas, sale and purchase of second-hand vessels, newbuilding contracts, demolition of vessels, dry cargo chartering, ship valuation and research. Its Technical division includes Braemar Engineering, Braemar Howells Limited and Braemar incorporating the Salvage Association businesses. Its Logistics division includes Cory Brothers Shipping Agency Limited and Cory Logistics Limited. more »

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Cenkos Securities plc (Cenkos) is a United Kingdom-based independent institutional securities company. The Company's principal activity is institutional stockbroking. Cenkos provides corporate finance, corporate broking, research and execution securities services to small and mid-cap growth companies, and other companies, across a range of industry sectors, as well as investment funds. The Company offers its clients access to equity finance at various stages of their development. The Company's activities also include institutional equities and market making. It provides technical advice on all forms of corporate transactions, including initial public offerings (IPOs), fundraisings, mergers and acquisitions, disposals, restructurings and tender offers. The Company's subsidiaries include Cenkos Nominee UK Limited, Cenkos Securities (Trustees) Limited and Cenkos Securities Asia Pte Limited. more »

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Grindeks AS (Grindeks JSC) is a Latvia-based joint stock company engaged in the pharmaceutical sector. The Company is engaged in the production of pharmaceutical and medical products, and phytochemical medicine. The Company offers products, such as: ointments, cough and cold medications, anti-inflammatory agents, gastroenterological agents, tonics and natural health products, as well as active pharmaceutical substances. The Company’s research activities are mainly focused towards the development of cardiovascular medications, neurological medications, anti cancer agents and antiviral drugs. The Company is active domestically and abroad, mainly in the Commonwealth of Independent State countries. It also owns four subsidiaries, Tallin Pharmaceutical Plant JSC, Namu Apsaimniekosanas projekti Ltd, Grindeks RUS Ltd and Kalceks JSC. As of December 31, 2011, the Company’s major corporate shareholder was AB.LV Private Equity Fund 2010, with a stake of 11.38%. more »

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  Is LON:BMS fundamentally strong or weak? Find out More »

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About Ben Hobson

Ben Hobson

Stockopedia writer, editor, researcher and interviewer!


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