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To: Razorbak who wrote (67999)	6/10/2000 1:31:00 PM
From: Ditchdigger	Respond to of 95453

Thursday June 8, 7:00 am Eastern Time Morningstar.com Redeeming Features of Wall Street Analysts By Gregg Wolper Wall Street analysts are catching a lot of flak lately. Last week The Wall Street Journal wondered why so few analysts have cut their earnings projections for Kansas City Southern (NYSE: KSU - news), even though assets in the Janus funds, which provide most of K.C. Southern's profits, have fallen significantly. Meanwhile, in the June issue of SmartMoney, a First Union analyst readily concedes that attracting investment-banking business is a far more important part of her job than what used to be an analyst's primary role--providing objective company research. That won't surprise people in the investment world. Rarely, though, has an analyst been willing to make the harsh truth so clear to the public. She estimates that she spends two thirds of her time on marketing and banking, squeezing in research on evenings and weekends, and she admits that she allows company officials to practically write their own earnings estimates. Moreover, she seems surprised that investors actually take seriously the target prices she sets for stocks that she covers. All in all, quite an unflattering portrait. And these are just the latest revelations about the shortcomings of brokerage-house analysts. You might be surprised, therefore, to hear that some very good fund managers tell us that they take analysts' reports into account when making investment decisions. Such statements occasionally come even from industry giants like Fidelity, who have armies of their own analysts trained in their own style. More commonly, though, it's the managers at smaller shops, who might only have a couple of in-house analysts at their disposal, that sometimes say they make up the difference by consulting Wall Street analysts, among others. Why would professional money managers tap such a tainted source? Because despite the conflicts inherent in many analysts' jobs, some are known for providing detailed and intelligent reports about a particular company or industry. Managers learn whom to trust. If an experienced sector analyst with a record for accurate reporting can provide up-to-date details about a company's new products or pass along the scuttlebutt from the firm's rivals and suppliers, that's information worth having. What does this mean for the average investor? First, that having a small in-house research staff does not necessarily make a fund manager less informed. Second, it offers an indication of how to deal with Wall Street research yourself. Regard with skepticism all target prices, ``strong buys,'' and guru predictions of the year-end Dow level. But take note when you come across forthright analysts with experience covering an industry--especially those willing to criticize instead of acting as constant boosters. It can't hurt to include their opinions among the many other sources you use when making your own investment decisions. Fun with Castro It's not just spoilsport value mavens who poke fun at the ever-changing valuation methods used to justify investing in richly priced tech and telecom stocks. In this week's Barron's, Oscar Castro, longtime manager of Montgomery Global Communications (Nasdaq: MNGCX - news) and a big telecom fan, concedes that he and his fellow growth investors got a little too creative trying to find reasons to keep buying even as prices reached the breaking point: ``We had moved from looking at P/E multiples, to P/E-to-growth rates, to enterprise-value multiples, to discounted-cash-flow models, to sum-of-the-parts, to option values, trying to justify owning the stocks. Some went up too high, too soon.'' Castro does note that valuations are much more attractive now, although he made the statement prior to last week's furious rally. He also demonstrates that his sense of the absurd--no doubt a useful trait for tech and telecom investors these days--goes beyond poking fun at valuation methods. When asked by Barron's for his ``picks and pans'' in the communications sector, he first says he has no pans. But then he reconsiders: ``With my accent I should not say that because people might think I've said I don't have any pants.'' Gregg Wolper can be reached at gregg_wolper@morningstar.com. biz.yahoo.com