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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (29945)	7/2/2001 11:54:02 PM
From: puborectalis	Read Replies (1) \| Respond to of 37746

Make Tech Analysts Disclose Their Track Records By Steven Sayre & Charles Stein Special to NewsFactor Network July 3, 2001 Stock analysts are often given the royal treatment, but they made a lot of mistakes predicting which way Internet stocks would go. Like Charlie Brown, Wall Street analysts have gone from heroes to goats. Investors are mad at them for the lousy advice they provided during the technology boom and bust. The New York attorney general's office and Congress are pursuing investigations into analysts, looking for evidence that their role as salesmen has compromised the research they do. There is talk of a new code of ethics and possible new regulations. We have a better idea. Let's just make analysts own up to their past sins -- sort of like sex offenders. Every time an analyst makes a recommendation he should have to publish his track record, a complete list of the stocks he has touted in the past and what ultimately happened to them. We came up with this idea after looking at the history of analyst recommendations on Exodus Communications, a once-hot technology stock. Anyone who studies the Exodus story and still believes what analysts say deserves what he gets. Glory Days Consider: Exodus was one of the earliest and most glamorous successes of the Internet era. The Santa Clara company specializes in hosting, a new form of computer outsourcing. Exodus built huge data centers around the country and rented space in them to dot-coms and corporate giants. In effect, Exodus said to customers: Let us run your Web operations. Business boomed. In the first quarter of 1999 Exodus had sales of $30 million. In the first quarter of 2001 sales reached $348 million. Unfortunately for Exodus, its costs grew rapidly too. The company floated roughly $3 billion worth of bonds and hundreds of millions of dollars in stock to pay for its expansion. 'Dried Up' The numbers made sense as long as the Internet bubble was expanding. When it burst, Exodus was in trouble. "Demand has dried up," said Alan Loewenstein, co-manager of the John Hancock Technology Fund. Many of Exodus's dot-com customers have died. Even big customers have cut back on spending. Exodus has announced it will lose more money than expected in the second quarter. It also said its customers were questioning its ability to stay in business. Suffice it to say this was not good news. Exodus stock peaked in March 2000 at $86 a share. It dipped in the spring and rallied back to $68 in August when it began a steady slide down. It sold Friday for just over $2. Getting Nervous Analysts were slow to recognize the trouble. Throughout 2000, the 30 or so analysts who covered Exodus continued to recommend the stock, usually enthusiastically. Last November, with the stock trading at $27, Michael Bowen of Deutsche Banc, rated the stock a "strong buy" and put a 12-month target price on Exodus of $117. In other words, he expected it to reach that price in the next year. A few analysts started getting nervous in January after Exodus reported a mediocre quarter. On Jan. 25, Robertson Stephens cut its rating on Exodus from "strong buy" to "buy," the Wall Street equivalent of a major vote of no confidence. Two Thumbs Down But most analysts stayed the course. Goldman Sachs had Exodus on its recommended list from January until last week when it cut its rating to "market outperform." Thomas Weisel Partners rated the stock a "strong buy" from last October until last week when it dropped its rating to "market perform." On Wall Street, anything less than buy equals two thumbs down. Michael Turits of Prudential Securities was another true believer. In November he called the stock a "strong buy" with a target price of $70. In January he stuck with his recommendation but dropped the target to $45. In April he dropped the target again, to $15, but kept his "strong buy" rating. In late May, even Turits's faith started to wane. On May 29 he cut his rating to "buy." A little over a week ago he recommended that investors sell the stock. Ten other analysts cut their ratings on Exodus. It was the equivalent of issuing an avalanche warning to skiers after they have already been buried by the snow. Healthy Dose Our point here is not to pick on the analysts who covered Exodus. Their performance was probably no worse than the analysts who covered a long list of other technology stocks. Seeing the future is tough, even for those who are paid six- and seven-figure salaries to gaze into a crystal ball and make predictions. As believers in the free market, we prefer full disclosure to regulations. The only things investors need to protect themselves from analyst hype are good memories and a healthy dose of skepticism.