Some argue that the total number of stocks covered by Wall Street analysts is shrinking at an alarming rate. SmartMoney put out an interesting article underlining this fact, illustrating that the total stocks covered today is quite small compared to a few years ago. To make the comparison more relevant, SmartMoney shows that in 2000 there were more than 7,600 firms that captured the attention of at least three analysts. Since then, the number has fallen dramatically down to below 6,000 such companies. This change could be explained in part by the fact that analysts prefer to analyze big companies which show potential for a further development.
This logic is quite simple, as every investor would rather invest in a more reliable company rather than a small one that could turn into a nightmare. Another factor that determines analysts' decision to cover the bigger companies is the fact that the bigger companies tend to have more news available that the analysts can use to discuss the companies new developments that attract investor attention. However, limiting the decision of which stocks to cover to these criteria could leave out many potentially attractive stocks for investors to consider.
The ideal move for investors would be to buy the most promising stocks at the market's best prices. This is the principle that Motley Fool Hidden Gems takes into account when selecting companies that could offer investor success; it mainly focuses on small- and micro-cap stocks.
Thus, Motley Fool Hidden Gems points out companies such as Haemonetics Corp. (NYSE: HAE) which is covered by 7 analysts, OneBeacon Insurance (NYSE: OB) covered by 5 analysts, Monterey Gourmet Foods Inc. (NASDAQ: PSTA) with two analysts, and Willamette Valley (NASDAQ: WVVI) which got no attention what-soever.
I could say that investors should take a good look at all companies before investing their hard earned money, but at the same time they should be aware that no strategy or selection criteria could offer them guaranteed success. There are always a lot of factors that may affect results in unpredictable ways. Hopefully analysts will start to cover more stocks, and understand that their main job is to make sure that their investors get as much information possible, on as many stocks as possible.
Have you noticed the trend in few companies getting analyst attention of the past few years? Which stocks have you been interested in lately that you discovered were not covered by Wall Street analysts, and where did you go to find the information that you needed to obtain on these stocks?
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
