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Top Stories: Dell 'Sell' Rating Has Analyst Bombarded with Investor Hate-Email
By Eric Moskowitz
Staff Reporter
4/2/98 1:50 PM ET
Craig Kaufman has committed broker blasphemy. A week ago he initiated coverage of the highflying box maker Dell (DELL:Nasdaq) with a sell rating.
His life hasn't been the same since.
Kaufman has been taunted on Internet message boards, spammed with nasty emails and bombarded with angry phone calls.
"I've been getting hundreds of emails from Dell fans saying you're pathetic and that they were going to send my reports to the SEC. It's been pretty unbelievable," says Kaufman, who founded the New York-based tech research boutique Kaufman Bros. just over three years ago. "I've gotten so many calls that I've had to have my calls forwarded for the last four days."
That an analyst risks rebuke by going negative on a company is nothing new to Wall Street. Sell-side analysts who traffic in the terms neutral, hold or sell can hurt their own relationship with a company as well as their firm's investment banking prospects
But in the online age, there's a whole new contingent to contend with -- angry investors who now have an outlet to vent.
"Your analysis of DELL is lazy at best ... I doubt that you had any objectivity in evaluating the merits of this company... Mr. Kaufman, you do a tremendous disservice to your clients ... [Kaufman and his company] are complete idiots," said one Silicon Investor poster who goes by the moniker LongonDell.
Another poster, code-named Venkie, had this to say about Kaufman's report, titled "The Emperor Has No Clothes in PC Land": "Is this a common ignorance or lack of due diligence or is it sour grapes from missing out on a fabulous story? ... The Kaufman boys have no clothes."
Said another poster, Freeus: "Maybe this is Kaufman's way of getting noticed???"
Not many analysts are likely to have enjoyed such a reception. Only 1% of all analysts have a strong sell, or 5, rating on a stock, and 2% have a sell, or 4, rating, according to Chuck Hill, director of research at First Call. "That means that 97% of all analyst ratings are either a neutral or better," says Hill, "but everyone knows that analysts have a pronounced optimistic bias."
Hill says the average analyst rating for First Call's 6,000-plus stock universe just jumped from 2.2 to 2.0, equivalent to a buy rating. For Dell, it's 2.0. While other analysts have holds on the company -- 12 of the 29 tracked -- Kaufman is the only known analyst with a sell, Hill notes.
Typically, a hot stock like Dell (it's up more than 300% over the last 52 weeks) creates a dilemma for analysts. Oftentimes when you have a stock with a cult following, it seems like the only safe time to downgrade is after the bad news comes out. And that's when analysts are called out for being too late on a stock, says Hill.
"Unfortunately, more often than not, the herd mentality takes over and analysts react en masse -- it's the ones who stick their neck out after doing solid research and turn out to be right that should be followed."
Perhaps, but when you combine a hyperventilating market with this era's instant feedback mentality, the terrain for analysts becomes treacherous. Even Kaufman seems to be second-guessing the payoff for going out on a limb.
"Even though we're a pretty small outfit compared to a Hambrecht & Quist, the response from my Dell call has almost made me not want to do this again."
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