Gurus of 'buy,' 'sell' and 'hold' Stocks: Stock analysts, in projecting what will happen with individual companies or with the stock market as a whole, sometimes crawl out on a limb.

SUN JOURNAL

March 09, 1997|By BILL ATKINSON | BILL ATKINSON,SUN STAFF

Lucent Technologies Inc. is a company that designs and builds telephone systems for businesses and public telephone networks. Last month, its stock was at a record high until it ran into a wall named Anthony Langham.

Langham is an analyst with Smith Barney, the second-largest brokerage and financial services firm in the country. He is one of 132 stock analysts employed by the firm, and one of 3,800 analysts nationwide who follow publicly traded companies. Part of Langham's job is to track every move Lucent makes and advise investors to buy, sell or hold its stock.

On Feb. 26, Langham questioned whether Lucent would be as profitable as in the past. He also groused that Lucent's method of accounting overstated profits in its personal communications service business.

Then he changed one word in his formal findings. Instead of recommending Lucent's stock as an "outperform," he downgraded it to "neutral."

Neutral is tepid. It's noncommittal. It's like saying: "Don't buy the stock, but you might not want to sell it, either."

It's death.

Lucent's shares lost more than 6 percent of their value that day.

Behold the financial analyst - the eyes, ears and voice of Wall Street. Analysts can build or bust a company's stock with literally a word, or send the market gyrating with a prediction.

They are information collectors who are not above gossiping with reporters or talking to a company's competition or cornering their customers. Anything to get the skinny on business.

They may follow Internet firms, aerospace companies or the stock market as a whole. But in the end, their job is largely the same - to coddle investors and help them make money.

A powerful analyst such as Langham is known among his colleagues as an "ax." The ax has enough clout with investors to persuade them to sell, buy or hold.

And when the ax says sell, stocks can be chopped to pieces.

This seems a fine time to be a stock analyst. Fame as well as money seems to be so easily within reach.

As the stock market has soared, so has the station of analysts, who used to toil in obscurity but now are stars - the people whose names are printed in big type in newspapers and magazines and who make guest appearances on TV.

There are two kinds of analysts: equity research analysts, who advise investors about publicly traded companies such as Coca-Cola Co, and market strategists, or stock market prognosticators.

The prognosticators are the larger celebrities, especially those who risk their reputations by making predictions about the direction of the entire market.

Ralph J. Acampora is such a star. He predicted two years ago that the Dow Jones industrial average would reach 7,000 points.

The head of technical research at Prudential Securities Inc., Acampora was ridiculed by his colleagues for the forecast. But then the Dow crossed 7,000 points.

He now predicts that it will pass 8,000 by year's end.

Elaine Garzarelli became a celebrity for calling the 1987 stock market crash. Nearly 10 years later, she still holds sway on Wall Street. She warned clients last July that stock prices could fall 15 percent to 25 percent.

She was proved wrong, but when her prediction first became known, the Dow fell 44 points.

Wall Street's hottest analyst is Abbey Joseph Cohen, market strategist with Goldman Sachs. SmartMoney magazine this year named her the No. 1 pundit because of the accuracy of her predictions.

How much clout does Cohen wield?

Last Nov. 15, the market fell 55 points in midday trading on rumors that she had become bearish on stocks.

The rewards for being a top analyst are huge: Pundits and the best research analysts can command as much as $4 million a year.

That doesn't mean they are loved by the people in the industries they study. Company executives grumble that analysts are obsessed with short-term performance at the expense of long-term growth and profitability.

If performance isn't met, they punish the company.

Timothy F. Finley, chairman and chief executive of Jos. A. Bank Clothiers Inc., recalls a meeting with an analyst in one of the company's clothing stores.

Finley was explaining the business while the analyst ate a sandwich. During the conversation, the analyst rested the sandwich on a table of ties.

"You just kind of throw your hands up in the air," Finley says. "I tend to like most of them. They try hard. But some of them are very arrogant."

Their jobs require long hours and stamina.

Nicholas P. Heymann, 40, is an analyst with NatWest Securities Inc. in New York. He has been in the business for about 14 years and follows aerospace and electrical equipment makers. Heymann spends 50 percent to 60 percent of his time on the road. He meets with company executives, attends trade shows, and talks with large investors such as pension funds.

He leaves the office around 5 or 6 p.m., drives to his home in Stamford, Conn., eats dinner with his family and plays with his two children. From 9 p.m. to 1 a.m., he writes research reports. He's up at 4:45 a.m. and back in the office by 6:30 a.m.

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