New York, NY – One of the factors that some investors use to determine the “quality” of equity research (at least traditional fundamental company research) is the performance of the firm or analysts’ stock recommendations. This morning, the Wall Street Journal announced its annual “Best on the Street” awards to equity research analysts at sell-side and alternative research firms who recorded the best returns on their BUY / SELL / HOLD recommendations over the past year.
Based on criteria established by the WSJ (and data provided by Thomson Financial), 223 analysts out of a total universe of 1705 eligible analysts over the past twelve months would have helped investors make money. These analysts produced research in 45 industry groups.
BEST BUYS
Analyst / Firm Industry / Best Call Return
Pierre Maccagno Semiconductors 236.3%
Needham & Co. STEC
Dennis Telzrow Consumer & Specialty Finance 230.4%
Stephens & Co. EZCorp.
Barton Crockett Advertising & Publishing 144%
J.P. Morgan Chase Greenfield Online
Rod Ratliff Internet & Computer Services 121.8%
Stanford Group Akamai Technologies
Chang Hua Qiu Leisure Goods & Services 117%
Forun Technologies Ctrip.com International
BEST SELLS
Analyst / Firm Industry / Best Call Return
Rod Lache Autos & Auto Parts -90.8%
Deutsche Bank Dana
Jonathan Aschoff Pharmaceuticals -79.5%
Brean Murray Nuvelo
The table above shows some of the top individual BUY and SELL recommendations made over the past twelve months. As is clear from this table, very few analysts were particularly good at generating profitable SELL recommendations over the time frame – a development that is probably related to the strong stock market over the year. However, this is probably also related to the fact that very few analysts regularly issue SELL recommendations.
While table above is interesting fodder for journalists, it is not clear that this data is a very good reflection of the accuracy of an analyst, or profitability of any individual analysts’ stock recommendations. In fact, this data is similar to measuring the value of a baseball hitter by ranking those batters who hit the longest home runs. Yes, this is a measure of a batter’s power – but not necessarily something that would help a team win more games.
TOP RESEARCH FIRMS
Firm Total Awards No of Analysts Batting Ave.
Merrill Lynch 10 61 16.4%
Sidoti & Co. 8 22 36.4%
Bear Stearns 8 51 15.7%
Keybanc Capital Mkts 7 19 36.8%
Jefferies & Co. 7 31 22.6%
Stifel Nicolaus 7 32 21.9%
BMO Capital Markets 6 27 22.2%
Wachovia Securities 6 33 8.2%
Lehman Brothers 5 62 9.7%
Robert W. Baird 5 24 20.8%
The table above provides a list of the top ten sell-side and alternative research firms that recorded the most “top five” awards in the 45 industry groups tracked by Thomson and the WSJ. As is evident from this table, three bulge bracket firms, including Merrill Lynch, Bear Stearns, and Lehman Brothers posted a top 10 rating. However, this is not particularly surprising as these 3 firms had a much larger number of “eligible analysts” than many other firms. In fact, this is reflected by the fact that the “batting average” for these three firms was rather low (less than 17% in all cases).
The annual WSJ “Best on the Street” survey is a long-running measure of analyst accuracy, having been published for 15 consecutive years. Unfortunately, this survey is somewhat limited in its approach and, ultimately the value it provides to investors. We will address some of these limitations in the next few days.
Posted at 02:39 pm by mwmayhew
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