Schwab Equity Ratings Can Unearth Hidden Gems Among Stocks That Get Little or No Third-Party Analyst Coverage

Schwab Equity Ratings Can Unearth Hidden Gems Among Stocks That Get Little or No Third-Party Analyst Coverage

Ratings Help Investors 'Look Where Wall Street Doesn't' for Opportunities Among Neglected Micro-Cap Stocks

SAN FRANCISCO, Dec. 2 /PRNewswire-FirstCall/ -- Lack of analyst coverage could increase the investment potential of certain stocks, according to the latest research conducted by Greg Forsythe, senior vice president of Equity Model Development for Charles Schwab.

"Explorers seeking new lands don't look where others have already been," said Forsythe. "Likewise, investors should venture outside the world of stocks regularly covered by sell-side analysts to find potential hidden investment opportunities." Forsythe is referring to what academic researchers have termed the "neglect effect" -- the tendency of stocks with little or no analyst coverage to outperform their more widely-followed peers.

In an article from the fourth issue of "Schwab Investing Insights," a newsletter for clients in Schwab's Advised Investing Signature(TM) program, Forsythe identifies seven "neglected" stocks and explains why they might be attractive investments currently overlooked by investors.

Forsythe identified stocks that had Schwab Equity Ratings but little or no third-party analyst coverage. Through historical research, he found that the difference in average return between A- and F-rated stocks tended to be significantly wider among neglected stocks than among widely-followed stocks. In addition, A-rated stocks with little or no third-party analyst coverage historically provided higher average returns than more widely covered stocks.

How investors can use these findings

Neglected stocks are not hard to find: Of the approximately 3,000 stocks tracked by Schwab Equity Ratings, about 250 have absolutely no sell-side analyst coverage. An additional 900 are covered by only one to three analysts. That means there is a host of potentially overlooked stocks that might prove to be good investments. The key is being able to separate the wheat from the chaff. Because Schwab Equity Ratings don't rely on input from research analysts, they can be used by investors to guide them to the potential real "hidden gems" among lesser-known, micro-cap stocks.

With the help of Schwab Equity Ratings, Forsythe identified seven candidates that investors might want to consider as potential undiscovered opportunities. These companies each have a Schwab Equity Rating of A or B (as of December 1), market capitalizations of less than $500 million (micro-caps) and coverage by three or fewer third-party research analysts.

-- Books-A-Million (BAMM, $9.28 as of Dec. 1): This bookstore operator has
gotten back to growing its revenues. Earnings are bottoming, while
valuation remains cheap.
-- Boston Beer Company (SAM, $21.52 of Dec. 1): This brewer of the
well-known Samuel Adams brand has defied pessimistic Wall Street
analysts by reporting earnings per share (EPS) above consensus
estimates for three of the last four quarters.
-- First Busey (BUSE, $21.00 as of Dec. 1): This Illinois-based banking
and trust institution continues to deliver excellent operating
efficiency and stable EPS growth. A nice dividend yield and recent
insider buying provide valuation support.
-- Keynote Systems (KEYN, $12.78 as of Dec. 1): This business connectivity
services firm has delivered accelerating revenue and EPS growth in
recent quarters, much to the surprise of the three brokerage analysts
following the company.
-- North Pittsburgh Systems (NPSI, $26.03 as of Dec. 1): This
Pennsylvania-based telecommunications firm has grown steadily in recent
years, while many of its peers have struggled to survive. High
profitability, low debt and a 2.9 percent dividend yield add to its
attractiveness.
-- Supertex (SUPX, $23.83 as of Dec. 1): This maker of semiconductor
components has struggled the last few years, but seems to have turned
the corner in recent quarters. Investor sentiment is on the rise, as
analysts have been raising their forecasts and the stock price has been
gaining momentum.
-- Ventiv Health (VTIV, $19.46 as of Dec. 1): This provider of outsourcing
solutions for the pharmaceutical industry has recovered from a
near-death experience in 2002. Revenue and earnings growth have
exploded in the last year, pushing up the stock price.

Schwab's Advised Investing Services


Schwab Advised Investing Services give investors access to experienced investment professionals who work with clients to build a customized investment plan designed to help them reach their long-term goals in both up and down markets. Advised Investing clients receive regular portfolio reviews, ongoing advice and premium service support.

About Schwab Equity Ratings

Schwab Equity Ratings (SER) are clear A-B-C-D-F grades indicating Schwab's 12-month performance outlook on approximately 3,000 U.S.-based stocks. Starting from a foundation of practical and academic research, Schwab Equity Ratings incorporate only the factors found to be sufficiently predictive of potential future stock performance. The ratings are not influenced by consensus analyst opinion or company management. Schwab Equity Ratings are systematically applied to all stocks covered, providing investors with a consistent way to compare stocks across a broad range of industries and sectors. The ratings are updated each week and are integrated into many of Schwab's investor tools.

About Charles Schwab

The Charles Schwab Corporation (NYSE/Nasdaq: SCH), through its operating subsidiaries, provides securities brokerage and financial services to individual investors and the independent investment advisors who work with them. With over 7 million individual investor accounts and more than $1 trillion in client assets, The Charles Schwab Corporation is one of the nation's largest financial services firms. Schwab provides a complete range of services and products, including an extensive selection of mutual funds; financial planning and investment advice; retirement plans; banking products and services; and referrals to prescreened independent fee-based investment advisors. Schwab is also the leading provider of custodial, operational and trading support for independent fee-based investment advisors. The corporation's operating subsidiaries include: Charles Schwab & Co., Inc. (member SIPC), U.S. Trust Corporation (member FDIC), CyberTrader(R), Inc. (member SIPC), and Charles Schwab Bank (member FDIC). These companies' Web sites can be reached at www.schwab.com , www.ustrust.com , www.cybertrader.com , and www.schwabbank.com , respectively. (0004-12668)

See end of press release for regulation analyst certification and how to obtain important required disclosures.

Disclosure Information:

Analyst Certification: Greg Forsythe certifies the views expressed in these materials accurately reflect the analyst's personal views about the subject securities and issuers, and that no part of the analyst's compensation was, is or will be related to the specific recommendations or views in these materials.

For important research disclosures on the companies listed, please write to: Charles Schwab & Co., Inc., 101 Montgomery St., SF120KNY-27-210, San Francisco, CA 94104.

Micro-cap investing is subject to greater volatility than other asset categories.


Source: Charles Schwab & Co., Inc.

CONTACT: Sondra Harris of Charles Schwab & Co, Inc., +1-415-636-3292, or
Sondra.harris@schwab.com

Web site: http://www.schwab.com/


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