LightReading on JNPR's numbers:
lightreading.com
LU signs with Time-Warner:
lightreading.com
ADVA expands R&D:
lightreading.com
WSJ on analysts:
interactive.wsj.com@6.cgi?mfmuse/text/autowire/data/BT-CO-20010117-002504.djml/&d2hconverter=display-d2h&NVP=&template=atlas-srch-searchrecent-nf.tmpl&form=atlas-srch-searchrecent-nf.html&from-and=AND&to-and=AND&sort=Article-Doc-Date+desc&qand=&bool_query=jdsu&dbname=%26name1%3Ddbname%26name2%3Ddbname%26name3%3Ddbname%26period%3D%3A720&location=article&HI=
<<<<
January 17, 2001
--------------------------------------------------------------------------------
SMARTMONEY.COM: Some Kind Words About Analysts (Really)
By JAMES B. STEWART
(This report was originally published late Tuesday.)
NEW YORK -- I have occasionally been hard on Wall Street analysts in this column, and they are often an easy target. For one thing, their very use of the English language has become corrupted. When Buy means hold or even sell, and Hold definitely means sell, something has gone radically wrong. Their symbiotic relationship to the investment-banking arms of the firms that employ them means their recommendations are often tainted by at least the appearance of a conflict of interest. And they are always out on a limb with a recommendation, which means they're often wrong.
What I find most galling is that they lack the courage of their own convictions. They may love a stock at $100 a share, but once it plunges, they turn against it. I often see analysts downgrade a stock for no other reason than "market conditions." That's a euphemism meaning the market went the opposite direction from their prediction. Anyone following their recommendations would often end up buying high and selling low, which is a recipe for disaster. I wonder if the firms that employ analysts follow their advice in their own trading accounts. Somehow I doubt it.
So what good are analysts?
I actually find them quite valuable. In fact, I'll go so far as to say that as a group they're unfairly maligned. For one thing, analysts know a lot, and sometimes they're absolutely right. After I complained in a recent column about the overall bullishness of analysts last March, just when the Nasdaq was peaking, a reader pointed out an example of someone who went against the herd: Edward Kerschner, chairman of the investment policy committee at UBS Warburg Securities. I recently read Kerschner's market commentary of Mar. 12, 2000, "New Economy: Yes. New Metrics: No."
With benefit of hindsight, Kerschner's remarks were remarkably prescient. Noting the extreme disparity in valuations among what he termed the "old old industrials" (smokestack America), the "old new industrials" (established technology companies such as Intel (INTC)) and the "new new industrials" (Amazon (AMZN) and Ariba (ARBA)), Kerschner wrote that "New metrics are not new - just foolish. Today's mania for high-tech Nasdaq stocks (many valued on a price-to-sales basis) is reminiscent of 1960s conglomerates mania [and] 1980s LBO [leveraged buyout] mania.
"What will trigger the beginning of the end of the current new metrics era remains unclear. The actual events that triggered the beginning of the end of previous new metric eras were relatively minor. And, as with the case with prior manias, the complete demise of the current new metrics era may well take a few years. But, the initial corrective stage will likely be quite damaging just the same."
What's impressive isn't so much that Kerschner turned out to be right. The proverbial broken clock is right twice a day. But stripped of the conclusions, his reasoning is persuasive. He reminded his readers that "As we have pointed out many times in the past, in the long run only two things determine stock prices: earnings and P/E [price/earnings ratios]. The relationship between P/E and earnings growth is geometric, not linear, so that a very fast growth rate is worth a very high P/E multiple. But there is always a limit to that P/E multiple." Excluding companies with no earnings (which Kerschner discusses separately), that reasoning is sound, and rightly should have given investors pause.
Kerschner is now much more bullish. In his recent "Outlook 2001" Kerschner says stocks offer "one of the most attractive opportunities of the past 20 years." As for the "new new" and "old new" economy stocks, Kerschner says, "The stock price correction among the once E-metric driven 'new new industrials' has removed much of their excess, if the fundamentals today were as sound as their advocates had hoped just nine months earlier. But clearly the overall environment for these businesses has deteriorated markedly, with some companies essentially failing. There is not much of a case for a wholesale re-embracing of these stocks. But very selective buying of new economy stocks with real profitability prospects may be in order. Established big-cap tech stocks are at extreme levels of undervaluation."
Among Kerschner's current recommendations are "old new" economy stalwarts Cisco (CSCO), Hewlett-Packard (HWP), Microsoft (MSFT), Motorola (MOT), Nortel Networks (NT) and Texas Instruments (TXN), as well as a few "new new" stocks such as JDS Uniphase (JDSU) and Juniper Networks (JNPR). He also likes the financial sector, including Citigroup (C) and Merrill Lynch (MER), and companies he believes will benefit from Americans' overall affluence, such as Starwood Hotels (HOT).
This site offers a convenient way to access research information, by clicking on "research" at the bottom of the stock snapshot screen. I also like to click on "rating" for a quick summary of how analysts, as a group, view a stock. A contrarian would view a unanimous 10-point Strong Buy consensus to be a negative signal, since presumably all the good news is priced into the stock, and a very negative ranking to be positive. Like so many rules of thumb, this hasn't proven to be the case in my experience. Partly as an experiment, last year I bought two stocks that had perfect "10" ratings from analysts: Exodus Communications (EXDS) and Comverse Technology (CMVT). Both soared for the first few months I owned them. But then their performance diverged sharply, with Exodus falling back to earth and Comverse remaining one of my best-performing stocks. Still, their analyst ratings have stayed high, with Exodus now at a 9.33 and Comverse, surprisingly, slightly lower, at 9.11.
In my experience, what's important in assessing analyst reports is to ignore the conclusions - especially Strong Buy, Buy and Hold recommendations - as well as price targets, and concentrate on the facts. In many cases, no one spends more time gathering information on a particular industry or company than a Wall Street analyst. Their conclusions may be influenced by factors other than your best interests as an investor, but their reputations ultimately rise and fall on the quality of their information. That's information you can put to your own use.
>>>>> |
