Typically Wall Street is a monkey-see, monkey-do land because portfolio and fund managers tend to talk among themselves. One of the things we look for at 24/7 Wall St. is quality stocks that one or major banks like that managers tend to shy away from and be underweight. The theory is that there is still potential for managers to up their buying of the stocks, especially if they stay on a roll with good earnings or positive headlines.

In a new research report from Merrill Lynch’s outstanding equity and quantitative strategist Savita Subramanian, she and her staff make the case that owning neglected stocks and selling crowded stocks has been a winner, yielding almost 10% of alpha. We were intrigued by the stocks listed in the report that are rated Buy at Merrill Lynch are underweighted or neglected by funds.

While the companies seem to be high profile, very few funds own them. We picked four that pay solid dividends and that also are held by the lowest percentage of funds in the list.

American Electric Power

This industry leader is also a solid dividend-paying company that only 10.2% of funds own. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.

Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. They also think the company may sell generating assets and buy back shares with the proceeds, which will be accretive.

American Electric Power shareholders are paid a solid 3.53% dividend. The Merrill Lynch price objective for the stock is $68. The Thomson/First Call consensus price target is $67.47. Shares closed on Tuesday at $63.63.

Kohl’s

This top retailer has been pounded and could be offering investors a solid entry point. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States. It offers private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices. As of March 03, 2015, it operated 1,162 department stores in 49 states.

The company recently got a slew of free social media marketing and advertising when a Texas mom’s crazy internet post wearing a Chewbacca mask that she bought in a bargain bin at the store went incredibly viral. The clip has been seen by 135 million people as of Monday morning, making it the most watched video ever on Facebook. Kohl’s sent representatives to her house with a trove of gift cards and other items, and of course, more Chewbacca masks for the kids. Only 8.8% of funds own the stock.

Kohl’s shareholders are paid a huge 5.65% dividend. Merrill Lynch has a $42 price target for the stock, and the consensus price target is posted at $41. The stock closed most recently at $35.39.
Marathon Petroleum

This top refiner rolled over after first-quarter earnings and may be offering an outstanding entry point. Marathon Petroleum Corp. (NYSE: MPC) has a diversified business that operates through Refining & Marketing, Speedway, and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States that refine crude oil and other feedstocks, and its distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.

While acknowledging that the company’s margins may have compressed some, many on Wall Street also expect strong revenue contribution from the assets acquired from Hess. Last year the company converted almost all the Hess stations to the company’s Speedway brand.

Marathon reported lousy first-quarter 2016 earnings, owing to weak crack spreads and increased turnaround facility activity. The company posted earnings per share that fell well short of the consensus estimates. Revenues topped estimates, but they were much lower than in the same period a year ago. Only 12.7% of funds own the stock.

Marathon shareholders are paid a 3.6% dividend. The $50 Merrill Lynch price target is right in line with the posted consensus target of $50.75. Shares closed trading Tuesday at $35.81.

Tesoro

This is another top energy company, and only 9% of funds own it now. Tesoro Corp. (NYSE: TSO) is an independent refiner and marketer of petroleum products. Through its subsidiaries, it operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day, in addition to ownership in a logistics business that includes a 36% interest in Tesoro Logistics and ownership of its general partner. Tesoro’s retail-marketing system includes over 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.

By 2017, the company expects about $1 billion of EBITDA from its logistics segment. The company plans to grow the segment by focusing on low-risk, accretive growth projects. While some on Wall Street say the easy money has been made in the refiner’s, Tesoro remains a top play, especially as the company widens business silos and opportunities

Tesoro investors are paid a 2.6% dividend. The Merrill Lynch price target is a whopping $116, and the consensus is $105.96. The stock closed Tuesday at $78.58 per share.

These neglected companies could be offering investors some serious upside potential, and the mere fact that they are under-loved by fund managers could be the ultimate contrarian indicator.

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