(MONEY Magazine) – While blue-chip stocks have more than doubled since the bull market began in 1982, so-called shadow stocks -- issues ignored by most analysts -- have done even better. In fact, these comparatively obscure shares consistently outperform well-known stocks, according to a recent study by Avner Arbel and Steven Carvell, both professors of finance at Cornell University. They found that since 1977, stocks followed by six or fewer analysts provided an average total return of 25.6% a year, while those tracked by more than 20 analysts returned 16.9%. Further, as the chart above shows, shadow stocks, also known as generic stocks, have outperformed the S&P 500 every year since 1980. Why are these stocks neglected? Arbel and Carvell explain: ''Pension fund and mutual fund managers are not going to lose their jobs if they buy IBM and General Electric and then underperform the market, but they fear being fired if they buy unknown stocks that flop. As a result, under-researched stocks, taken as a group, are priced too low.'' In their new monthly newsletter, Generic Stock Investment Service (P.O. Box 6567, Ithaca, N.Y. 14851; $200 a year; one sample issue free), the professors advise investors in shadow stocks to diversify among six or more issues and plan on holding them for 18 months. Three companies listed on the New York Stock Exchange are among their current favorites: Cooper Tire & Rubber (recently traded at $35.50, annual sales of $577 million), a leading manufacturer of replacement tires; Federal Co. ($41.50, $1.2 billion sales), the largest U.S. chicken processor; and Shaw Industries ($25, $550 million sales), a carpet manufacturer. Money's cover subject this month, John Markese, director of research at the American Association of Individual Investors in Chicago, originated the term shadow stocks. He looks for companies whose earnings have grown rapidly and steadily during the past five years and which are followed by 10 or fewer analysts. His top picks include Bush Industries (traded on the American Stock Exchange at $29, $65 million sales), a manufacturer of ready-to-assemble wood furniture for computers, stereos and video systems, and Wolohan Lumber (traded over the counter at $14.25, $194 million sales), a midwestern chain of lumber stores for do-it-yourselfers. (For Markese's views on mutual fund strategy, see the story on page 92.) Analyst Jerald Cobbs at the brokerage Rauscher Pierce Refsnes in Houston also recommends stocks followed by 10 or fewer analysts. Two he likes are Brockway (NYSE, $46.50, $1 billion sales), a manufacturer of glass and plastic containers, and Figgie International Class A (OTC, $74.50, $920 million sales), a conglomerate that makes sporting goods and fire-protection equipment.

CHART: TEXT NOT AVAILABLE CREDIT: KAREN OEFF Source: Generic Stock Investment Service CAPTION: Neglected stocks beat the market DESCRIPTION: Total return for S&P 500 stocks and for neglected stocks, 1980 through 1986.