Wall Street Journal did an article on the analysts
interactive.wsj.com
Here's some sectors analysts that wons.
Semiconductors:
The mark of success for most Wall Street analysts is how much money a client makes following their advice. But in a sign of just how brutal the past 12 months have been to semiconductor stocks, this year's top stock picker earned his stripes by warning investors away from big money losers.
Needham & Co.'s A.A. "Tad" LaFountain III, raised eyebrows in April 2000 when he gave Intel Corp., an "avoid" rating even as the world's largest chip maker, at a split-adjusted $65, was enjoying a strong run-up. The rare "sell" recommendation -- which set the expected stock price at $30 -- seemed more akin to a "the-sky-is-falling" warning from the "Chicken Little" fairy tale than sound research. Then a funny thing happened: Intel shares plunged beginning in the fall, and they finished the year at precisely $30.0625.
A former portfolio manager, Mr. LaFountain, 50 years old, saved investors a bundle by steering them away from Intel and other semiconductor money-losers, including Texas Instruments Inc., which lost about 2% for the year, and Cypress Semiconductor Corp., which lost about 39%.
"Everything went to absolutely absurd levels," says Mr. LaFountain, who says it has been hard to find as much time as he used to for sailing or playing golf.
A.A. 'Tad' LaFountain
Back for his second consecutive year in The Wall Street Journal's annual analysts ranking, he says that what set him apart was shunning the practice of comparing one company's stock to prices being fetched by similar companies. "It's mind-boggling to me that everybody engages in this," he says. "It was not hard for me to appreciate that the short-term growth rates were clearly above sustainable levels."
Mr. LaFountain's ranking also benefited from his recommendation of Advanced Micro Devices Inc., which lost about 5% for the year but earned the analyst a total return of nearly 182% by the time he dropped the stock in June. Mr. LaFountain is slowly shifting into coverage of network communications, but as of early June, he remained enthusiastic about two of the four semiconductor companies he was following. They include Actel Corp. of Sunnyvale, Calif., and Altera Corp. of San Jose, Calif.
In sharp contrast to Mr. LaFountain's strategy of calling stocks to avoid, the other two top stock pickers in the semiconductor industry were noteworthy for spotting hot, mostly niche companies that ended up delivering handsome returns. Mark Grossman, a 33-year-old analyst at Societe Generale Group's SG Cowen Securities Corp., ranked No. 2 thanks to good picks with Elantec Semiconductor Inc. of Milpitas, Calif., Triquint Semiconductor Inc. of Hillsboro, Ore., and AXT Inc. of Fremont, Calif.
A guitar player when he can find the time, Mr. Grossman says he picks stocks by identifying hot, overlooked markets and then working backward to find companies that are the major chip providers in those industries. He remains bullish on Triquint, and also likes Cirrus Logic Inc. of Fremont, Calif., and Transmeta Corp. of Santa Clara, Calif., although he sees dark clouds hanging over those businesses for the next few quarters.
"It's sort of tough to be an analyst right now because the truth is there isn't a lot to recommend," he says.
Ranking third is Sandy Harrison, a 35-year-old analyst at Pacific Growth Equities Inc. and the top semiconductor stock picker in the Journal's survey last year. As he did the previous year, Mr. Harrison recommended emerging companies focusing on communications. Applied Micro Circuits Corp., San Diego, was a strong pick in 1999 and remained a winning recommendation this time around. Mr. Harrison also did well recommending AXT and TranSwitch Corp. of Shelton, Conn.
Looking forward, Mr. Harrison, who enjoys spending time with his wife and two children, expects companies providing security services for communications networks to be future winners. His top picks include SonicWall Inc. of Sunnyvale, Calif., and Zarlink Semiconductor, formerly Mitel Semiconductor, of Ottawa, Ontario. Companies, he says, "have been building infrastructure for some time. Now what we have to do is put up stop lights and toll roads."
Internet:
The only bright spot in the collapsing Internet sector last year was Check Point Software Technologies Ltd., an Israeli maker of Internet security software.
Check Point, whose shares rose almost 169% last year, was the best-performing recommendation of all three of the top stock pickers in this category. Nearly all of their other recommendations -- most of them in Internet-security software -- were down for the year. Winning in this category was a tricky business.
Howard S. Smith of First Analysis Securities Corp. in Chicago, nabbed the top spot by keeping a "strong buy" on Check Point all year and by issuing some timely upgrades and downgrades on some of his other stocks -- all of which posted declines for the year.
For example, he downgraded his rating on Entrust Inc. to a "buy" from a "strong buy" after its earnings warning in July. By the end of the year, Entrust, based in Plano, Texas, plunged to $13 a share from about $36 on the day he downgraded the stock.
Howard S. Smith
He also racked up a 34% gain when he upgraded RSA Security Inc., Bedford, Mass., to a "strong buy" in October, when the company predicted strong third-quarter earnings.
Mr. Smith, a 31-year-old former accountant, believes this year is going to be tough for Internet-security firms because they rely on sales to the ailing network companies such as Nortel Networks Corp. and Cisco Systems Inc. "I just don't see a big rebound," Mr. Smith says. "But long term, I think it's a fantastic place."
His top pick for investors who are willing to take risks is ValiCert Inc., a Mountain View, Calif., Internet-security firm that has yet to post a profit. "It may go under, but if things go right, there's huge upside," he says. For less risk-prone investors, he recommends the tried-and-true: Check Point Software.
Matt Barzowskas of First Albany Corp., a unit of First Albany Cos., Albany, N.Y., ran a close second to Mr. Smith. He also had a "strong buy" on Check Point all year.
But he was hurt by some poor timing. He missed most of the run-up in RSA Security's stock, upgrading it one week after the stock began to soar in October. Under the Best on the Street survey's methodology, he got fewer points for his "buy" on Entrust Technologies than Mr. Smith did for his "strong buy" during the same period.
Despite all the carnage in the Internet-security sector, Mr. Barzowskas, 34, an avid snowboarder and mountain biker, is still bullish on it. "Security still seems to be one space that has not been hit by the IT spending slowdown," he says. "We also see the continuation of e-business expanding and security as one of the foundations for e-business."
His top pick for this year is the same as last year: Check Point Software, the leading maker of Internet firewall software. He is also bullish on Internet Security Systems Inc., Atlanta, the leading maker of hacker-detection software, and Micromuse Inc., San Francisco, which makes network-monitoring software.
Check Point also was a slam-dunk for former basketball star P. Sean Jackson, director of stock research at SunTrust Equitable Securities Corp., the investment-banking subsidiary of SunTrust Banks Inc., Atlanta. Mr. Jackson, who ranks third in Internet stock-picking, was named Ivy League Basketball Player of the Year in 1992 when he was a guard for Princeton University. He also had a "strong buy" rating on Check Point for the entire year.
Mr. Jackson, 31, also captured a gain of about 10% with a "strong buy" rating on Internet Security Systems.
He has been following Internet-security firms exclusively since he joined SunTrust in 1998. Why Internet security? Because the area was complicated, misunderstood and followed by few analysts. "When that happens, there is opportunity," he says.
His top pick this year still is Check Point Software. "It is down since the beginning of the year, but it has held up better than most," he says. He also continues to like Internet Security Systems and SafeNet Inc., Baltimore, a small-cap network security provider. All three firms share one trait that he finds particularly appealing: profits
Telecom Wireless
The way to make money on wireless stocks last year was to stay out of the U.S.
While the market hammered the shares of most U.S. wireless companies, the top three stock pickers in the wireless-telecommunications sector racked up gains from companies in Latin America and Canada. The U.S. wireless industry was hurt by increased competition and by the market's doubts that companies will be able to make enough money to justify the costs of the expensive high-speed networks they are deploying, the so-called third-generation networks.
Jose Linares, a 29-year-old analyst at J.P. Morgan, the investment banking arm of J.P. Morgan Chase & Co., took the top spot. He credits his strong performance to his call early last year that the Brazilian wireless market was ripe for consolidation.
"We thought this would push stock prices up," he says. "Indeed, it did happen." He scored robust gains with both Tele Centro Oeste Celular Participacoes and Telemig Celular Participacoes. Tele Centro Oeste generated a total return of about 82% while he rated it a "buy" or "strong buy," according to calculations by Thomson Financial/First Call, while his calls on Telemig Celular captured a 36% return.
Jose Linares
In late 1998, the Brazilian government broke up the wireless monopoly previously held by telecommunications behemoth Telecomunicacoes Brasileiras SA, or Telebras. The small wireless companies spawned by the breakup quickly added subscribers and grew revenue.
But Mr. Linares's outlook has changed dramatically for 2001. He no longer is recommending most of the Brazilian stocks he did last year. The consolidation wave is mostly over, he believes. Moreover, the Brazilian government has auctioned off additional wireless spectrum, which could open the door for new companies, increased competition and lower prices.
"We turned bearish on the cellular stocks this year," Mr. Linares says. "Prices are going to go down, and nobody is going to make money."
Instead, Mr. Linares is looking to Mexico this year. He is recommending Grupo Iusacell SA, a Mexican wireless provider that is partially owned by Verizon Communications and Vodaphone Group PLC and that has an aggressive new management team.
Meanwhile, Mr. Linares is awaiting the birth of his first child and, in his spare time, learning to play golf.
Merrill Lynch & Co.'s Glen Campbell, 41, took the No. 2 spot with his bets on Canadian cellular companies. His big win was Clearnet Communications Inc., a wireless provider that was acquired by Telus Corp., the big Canadian telecommunications company, in August of last year. "Shareholders did extremely well in that deal," Mr. Campbell says.
Like his U.S. counterparts, however, Mr. Campbell took some big losses on other wireless stocks. "The same trends that have hit the U.S. stocks have hit the Canadian companies just as badly," he says. "We really believe in the long-term future of wireless."
When he isn't analyzing stocks, Mr. Campbell likes to spend time outdoors and play with his newly adopted daughter.
Vera Rossi of Morgan Stanley snared the No. 3 spot. Like Mr. Linares, the 31-year-old Ms. Rossi bet on Brazilian wireless stocks.
She upgraded those stocks in February of last year, anticipating the consolidation wave and released a report entitled, "Consolidation: One Plus One Equals Three."
"We saw on one hand that they were takeover targets, and they were very undervalued," she says. "At the same time, they were having strong performance."
Ms. Rossi, who is an avid reader of fashion magazines, says the prospects for the Latin American wireless companies are much brighter than those of U.S. firms. Since Latin American companies still have huge opportunities for growth in the voice business alone, they don't have to bet on revenue from the increasingly delayed and much-hyped data services (such as zipping off quick e-mail messages and surfing the wireless Web at fast speeds) that the third-generation networks in the U.S. and Europe promise.
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The semiconductor one surprised me the most. I would have pick Jon Josephs.
Jack |
