At the dawn of the 21st century, Wall Street stock research was about as reliable as an airline timetable. Brokerage analysis was riddled with conflicts of interest, and sell recommendations were a blue-moon event. But even if Wall Street, under pressure from government regulators, has cleaned up its act, following the advice of analysts may not be the best way to pick a stock. That's because stocks with broad analyst coverage sell pretty much for what they should sell for. "When you have highly skilled, trained MBAs following a stock, chances are you've arrived at an efficient price," says George Putnam, publisher of The Turnaround Letter.

You're far more likely to make a killing by taking the opposite tack: examining stocks that have little or no following on the Street. These stocks are often ignored by brokerages -- because the firms don't see potential investment-banking or commission revenues -- and trade at lower prices than they deserve to. The stocks stagnate not because of fundamental problems but because of lack of attention.

Tom Zemlicka, a broker at D.A. Davidson & Co., in Boise, Idaho, has made a fortune for himself and for clients over the past 40 years by investing in underfollowed stocks. "If you do really good homework on these businesses, you can make ten times your money if you're willing to hold for three to five years," he says. "It's kind of like looking for gold in a junkyard."

Zemlicka suggests devoting 10% of your stock money to the shares of entrepreneurial but little-covered companies. One of his pals, Bill Dunk of Chapel Hill, N.C., says he's gotten by far the biggest bang for his buck by investing in such underfollowed shares over the decades. Sometimes these stocks tread water for years, then suddenly soar with the arrival of a catalyst, such as their inclusion in a market index or the initiation of Wall Street coverage. "I'm fairly certain the investments will work out," says Dunk, a consultant to chief executive officers. "I just don't know when. Time is the risk factor."

We've identified seven attractive stocks with little or no following on Wall Street (none is covered by more than two analysts). Note that these stocks are volatile and are best suited for risk-tolerant investors.

Toxic newspapers

Putnam, whose monthly newsletter has an outstanding stock-picking record, dines on companies in distress. "While others look for upbeat headlines, we look for bad news," he says. A lawyer by training, Putnam analyzes beaten-up, inefficiently priced companies that have fallen out of favor. "Wall Street avoids stocks with perceived risk," he says. "Analysts are mostly interested in saving their jobs."

One of his top picks is Sun-Times Media Group (SVN), formerly Hollinger International, publisher of the Chicago Sun-Times and dozens of community newspapers in Illinois. Investors are treating Sun-Times like toxic waste because its controlling shareholder is still Hollinger Inc., the former kingdom of Conrad Black, who is on trial for looting Hollinger International. "Everybody has kind of lost hope and bailed out of Sun-Times over the past three years," says Putnam. In mid June, the stock traded at about $5.50, or 73% off its record high, set in 2004.

Putnam doesn't know exactly what the catalyst will be for a Sun-Times turnaround or when the catalyst will emerge, but he has a good hunch: He thinks the company will be sold within a few years, either whole or carved up into pieces. Local papers in particular are still valuable assets because they are the best vehicles for neighborhood advertisers, such as restaurants and independent stores, to reach customers. Private-equity money is flowing into local-newspaper chains. When Putnam analyzes the company the way private-equity funds assess their potential targets (one favorite method is to compare a company's market value plus net debt outstanding to revenues), he concludes that Sun-Times is much cheaper, on a value basis, than most other publicly traded newspaper publishers, such as Journal Register Co.

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