Monday, May 25th, 2020

How to Find Forgotten Stocks


Some stocks are always in the news and are the darlings of stock analysts. And some stocks are forgotten. Stocks may be forgotten because they hold no promise and stocks may be forgotten even though they are diamonds in the rough. Forbes suggests three forgotten stocks likely to do well in the coming year.

For years Boyar Research has offered up winning stock picks for value investors to study during the holidays when it publishes a list of 40 forgotten companies set to surge in the New Year. Since Boyar Research began hunting for its so-called Forgotten Forty stocks, these picks have handily beaten the S&P 500 Index.

There is a trick to finding forgotten stocks and then there is work in deciding if they are worth another look. Some folks are good at this.

The firm pores over Wall Street for unloved companies where it spots a looming positive catalyst, for instance a corporate breakup or a revival in sales growth and investor interest. Last year stocks like industrial pipe and valve giant MRC Global, Scotts Miracle-Gro, workplace uniform specialist UniFirst Corp. and Liberty Broadband were among Boyar Research’s top performing picks, helping the firm’s Forgotten Forty list to an over 16% gain, trouncing the S&P 500 Index’s 11% rise (these figures include dividends).

Forgotten stocks may not end up being 100 fold gainers but well-chosen stocks of this sort commonly beat the rest of the market. Here are three forgotten stocks that Forbes mentions:

Discovery Communications

Brinker International

Legg Mason

Each of these sleepers has good reason to do better than the average stock this next year. If you are not good at finding forgotten stocks try a firm like Boyar Research and use their list. And if you want to hedge your risk buy call options instead of buying the stock.

An options trader who thinks a stock’s price will go up can purchase the stock or, for a much lesser amount, purchase a call option on stock at or near the current price. This means the options trader has the right to purchase the stock at any time up until the expiration date of the call option, at the set price called the strike price or the exercise price regardless of what the market price, the spot price, is. If the stock does not go up the trader is under no obligation to buy. If the stock goes up the trader has the right to buy.

The price of a call option is based on what traders think is the value of the option and upon the difference between the set price for buying the stock and current stock price. If the consensus of options traders is that the stock is very likely to go up the price of the call option will reflect that fact and be more expensive. If options traders believe that the stock price will go down or stay the same then the price of the option will be low.

The risk in buying a call option is that the stock will not go up enough (or not at all) to warrant exercising the option and buying the stock. The risk of selling a call option is that the stock will go up spectacularly and you will miss out.

The beauty of picking forgotten stocks is that no one has bid up the price of their call options so you can get in cheap and then cash out when the stock “unexpectedly” goes up in price!

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