Wall Street's research analysts get the glory, the television cameras and the fat paychecks, building celebrity and wealth through a markets-obsessed media and assiduous corporate finance work.
By Associate Editor Maria C. Ferrer, Contributing Editors Pam Abramowitz, Jeanne Burke, Mary D,Ambrosio, John Hintze, Sara Kandler, Suzanne Lorge, Ellen James Martin and Melanie Waddell
November 2000
Institutional Investor Magazine
Wall Street's research analysts get the glory, the television cameras and the fat paychecks, building celebrity and wealth through a markets-obsessed media and assiduous corporate finance work. But when it comes to stock selection, it's the analysts on the buy side , the ones who undertake analysis for the investment shops themselves , whom portfolio managers rely on for money-spinning recommendations.
Picking stocks has rarely been so challenging, with markets trading sideways and worse. Add to that the nonstop upheavals wrought by globalization and technology, as well as the sheer volume of information in the marketplace, and the job of the buy-side analyst becomes increasingly complex. "Our biggest value-added is judgment," says Clifford Krauss, director of equity research for State Street Research & Management Co. "And given all the information that's now out there, it's sometimes harder to tune out the noise to make that judgment."
No doubt, dramatic market swings have created terrific openings for disciplined investors. "When you see good companies dropping 40 or 50 or 60 percent in a day, it often provides opportunity," says Bill Stromberg, director of equity research for T. Rowe Price Associates. But as the Street zeroes in on short-term recommendations , buy! , institutional analysts are often left to undertake the broader, thematic thinking that underpins long-term portfolio performance.
What's most valuable, these buy-siders say, remains unchanged: thoughtful, probing analysis. From working the phones with suppliers and customers to touring facilities and grilling a company's top brass, institutional analysts often perform the unglamorous, nitty-gritty labor that leads to meaningful ,read profitable , market intelligence.
Gathering that kind of market intelligence, at least from the companies themselves, may be more difficult under a new Securities and Exchange Commission regulation that requires public corporations to disseminate sensitive material information to all investors at the same time.
But company input is just one piece of the puzzle. Perry Traquina, director of global industry research for Wellington Management Co., says his firm's approach to analysis won,t change. "We,ll continue to do what we,ve been doing all along: going to trade shows and conferences and talking to suppliers and clients."
To recognize some of the best analysts working for money managers, Institutional Investor this summer asked the Wall Street analysts who received votes for our 1999 All-America Research Team , more than 2,000 of them , to name the buy-side counterparts whom they viewed as truly excellent. About one third of the sell-side analysts responded.
Following are profiles of the analysts mentioned most often in ten broad industry groups: basic materials, capital goods/industrials, consumer, energy, financial institutions, health care, macro, media, technology and telecommunications. This feature was compiled by Associate Editor Maria C. Ferrer; the profiles were written by Contributing Editors Pam Abramowitz, Jeanne Burke, Mary D,Ambrosio, John Hintze, Sara Kandler, Suzanne Lorge, Ellen James Martin and Melanie Waddell.
THOMAS IN
Galleon Group
Age: 32
Sector: Telecommunications
Appearance on Best of Buy Side list: First
Years in business: 6
Buy-side analysts are often criticized for being so broad in their coverage that sell-siders have to spend valuable time educating them on specific sectors. Not Thomas In. His coverage of the wireless industry , both telecommunications and Internet companies , is so focused that Wall Street analysts occasionally find themselves in heated debates with him about the latest statistics and developments. Says one analyst, "If I think a company is going to do well, I,ll run it by Tom to see if he,ll laugh at me or agree with me."
In is so immersed in his space, from the chips and semiconductors within the products to the distributors and customers in the marketplace, that financial institutions and other industry players urge start-up companies to get to know him for his extensive contacts. "A lot of guys should know a lot , Tom knows more," one sell-side analyst says. "But he also knows what's important. If an announcement comes out on company A, he asks, ,What do you do about company B? Or about one, two or three companies down the road?, He is able to make transitive interpretations, if you will, in a very impressive way."
Gauging such a rapidly changing industry requires a tremendous amount of analysis, and In, who received an honorable mention in Institutional Investor's buy-side survey two years ago when he was at Lord, Abbett & Co., evaluates his sector from multiple vantage points. While keeping close tabs on news flow and Wall Street sentiment, In scours corporate filings, talks to midlevel company officials such as line, production and procurement managers and studies the industry's web of suppliers, manufacturers, distributors and consumers. "We do a profound amount of channel checks," he says. "We look at the whole value chain to see if there is any informational disconnect."
For example, In may find evidence of a slowdown in the demand for phones at a cellular carrier, even though one of the company's manufacturers says that its own phone orders have not declined. "We use many data points to put the picture together," he says, to identify where the actual problem may lie and make investment decisions accordingly. A second, potentially profitable, "disconnect" occurs when Wall Street,s perception of a situation or a company differs from In's conclusions. "If I know, from checking all the pieces, that revenue is going to be better than expected, that is another form of arbitrage information," he notes.
Although Galleon Group mainly buys U.S. names, analyst In travels the globe, visiting his companies, customers and suppliers in Asia, Europe and Latin America. Closer to home, he keeps on top of industry hotbeds, from California to Toronto, picking the brains of product marketing and business development directors.
In started his career at Coopers & Lybrand as a senior auditor, then moved into asset management, working as an analyst at Deutsche Morgan Grenfell Investment Management before moving to Lord Abbett. He joined Galleon in 1999.
He credits his success to the structure and heft of Galleon, which with about $5 billion under management is one of the largest hedge funds. "The reason that I,m informed is that there are ten other people in my organization just like me, constantly digging for information," In says. Managing general partner Raj Rajaratnam says that Galleon's 11 technology analysts (an additional five focus on health care) meet with 250 to 300 firms a month, build their own models and "try to connect the dots" among the various companies, sectors and trends. In adds that regular and impromptu meetings, in-house one-pagers and constant e-mails allow the analysts to leverage off one another. "There is a lot of convergence in technology, and there is a cross-pollination of information," he says. "That,s what we use to get an edge."
GORDON CRAWFORD
Capital Research and Management Co.
Age: 53
Sector: Media
Favorite stocks: TimeWarner, Viacom, Walt Disney Co.
Appearance on list: Eighth
Years in business: 29
Few on the buy side have become as influential, or as celebrated, as Gordon Crawford, who makes his eighth appearance in this feature. But the Los Angeles,based media guru is not one to rest on his laurels , or in glitzy Laurel Canyon, for that matter. A regular on Vanity Fair magazine's annual list of the top 50 leaders of the information age (this year he slipped to 32 from 23), Crawford remains a dogged researcher, skillfully sifting through reams , well, reels , of information and networking with his nonpareil industry contacts. The reason for his fierce work ethic? Says Crawford, "You,re competing with hundreds of other really bright people." The result, says one Wall Street analyst: "He's one of those clients that typically has more information for you than you have for him."
Crawford's Los Angeles location gives him access to many levels of management. Two or three days a week, he lunches with company officials, such as division heads, who fly below the radar screen of standard investor contact. "We New Yorkers don,t gain the same perspective," says one Wall Street analyst. "We tend to deal with the corporate types only, while he has access to the hands-on operational management."
Crawford's talents are hardly limited to lunch. "He has a unique way of framing issues and maintains a dialogue at appropriately high levels," says one sell-sider. "So many analysts on the buy side just want to know about your earnings model. Gordy wants to know about strategic issues and whether this management team ,gets it., He's able to engage in a reasonable and interesting dialogue about the issues, which leads to stimulating each others, ideas."
A dedicated sportsman who enjoys golf and fly-fishing, Crawford, 53, holds an MBA from the Darden Graduate School of Business Administration at the University of Virginia. He has spent 29 years at Capital Research and Management Co. where he serves as both entertainment analyst and manager of a diversified growth portfolio. A believer in the broad themes of vertical integration and globalization, Crawford says his largest holdings are "the four big vertically integrated manufacturers and distributors of entertainment and information": the soon-to-be-merged AOL Time Warner, News Corp., Viacom and Walt Disney Co. "Buy them and stick them in a drawer," he says.
"I pride myself in taking complex companies and breaking them down into all of their constituent parts," says Crawford, explaining that many entertainment companies don,t fit standard analytic models. Time Warner, for example, reports little in earnings partly becauseit has such enormous goodwill amortization. Other companies have off-balance-sheet assets or assets in development that are now producing negative ebitda. "You have to go asset by asset and value them in different ways depending on where they are in the life cycle," he says.
Crawford credits much of his success to Capital Research's independence, long-term outlook and sole focus on asset management. Analysts are paid well and given decision-making power in terms of running money. "We take big positions and have low turnover [in positions], so we get to know the companies and the managements very well," he says.
One of Crawford's admirers explains it this way: "Capital Research's focus is on long-term strategic investing. And in an area that is often out of favor, by focusing on the long-term strategic context of issues, he's proven to have a terrific track record over the long term."
Perhaps the biggest reason for his success? "I love the stock market," he says.
TEE TAGGART
Wellington Management Co.
Age: 52
Sector: Basic materials
Favorite stocks: Akzo Nobel, BTP, Cytec Industries
Appearance on list: First
Years in business: 17
To the Wall Street research analysts who work with her regularly, Harriet (Tee) Taggart seems to have the world on a string. She has an exceptional grasp of global markets and international companies, the result of diligent research and tireless travel. The chemicals and environmental services guru is on the road so much, says one peer, that "it's hard to find her in Boston. We communicate half the time by voice mail."
When she isn,t in her office at Wellington Management Co.'s Boston headquarters, Taggart can be found prowling the far corners of the globe, culling firsthand research on the companies she covers and getting to know management personally. "She gets info from all sides," says one veteran sell-sider. "Some analysts are insular. She's the opposite."
Meeting with overseas companies "takes a lot of preparedness," says Taggart. She studies not only their balance sheets and cash flow statements but also the history and cultures of their countries to understand the context in which they operate. Although Taggart, who was raised in the Netherlands, speaks Dutch and French, she brings a simultaneous translator to business meetings to make sure she doesn,t miss any nuances. Right now she's studying Mandarin Chinese to help expand her comprehension of the Asia beyond Japan , an area, she says, where most analysts have "less of a navigational map."
Such attention to detail earns respect. One sell-side counterpart applauds Taggart's ability to track key markets in Asia, praising especially her assessments of the outlook for supply and demand. During the economic expansion of the past 12 months and the concomitant boost to the larger-cap stocks she follows, she delved behind the rising numbers to ascertain which U.S. and foreign stocks were demonstrating true performance and would be strong enough to weather an economic downturn. "She thinks strategically about businesses , structurally," explains one admirer, who marvels at her ability to select winning stocks. Describing her basic strategy, Taggart says she focuses not just on her companies, growth targets but on the pitfalls they may encounter down the road. "When I learned to drive as a teenager," she says, "I was taught that you don,t watch the car right in front, you watch the highway far ahead."
This forward thinking underscores her approach to the chemicals industry's rapid expansion into Web commerce. For the past several years, she's been analyzing chemicals companies, capital spending patterns and tracking their development of enterprise software systems to gauge how well each company is setting itself up for business-to-business , and business-for-business , e-commerce. But her research doesn,t stop there: She also checks in with the chemicals companies, customers and management information systems providers.
Taggart, who received an honorable mention in Institutional Investor's buy-side survey two years ago, earned graduate degrees in capital markets from Harvard University and Massachusetts Institute of Technology. She worked in commercial banking, municipal finance and venture capital before joining Wellington in 1983; there she launched a fundamental research effort for higher-risk fixed-income and convertible securities. In 1992 she moved into equity research, taking over the firm's global chemicals and environmental coverage. She also oversees some of the group's portfolio management. "At Wellington we can tackle global industry assignments for extended professional careers," says Taggart. This has allowed her to develop the broad, deep-seated knowledge typically found only on the sell side. Describing her as "brilliant," one sell-side observer says, "I wish I were half as smart as she is."
ANNA DOPKIN
T. Rowe Price Associates
Age: 33
Sector: Financial institutions
Favorite stocks: ChaseManhattan Corp., Goldman Sachs Group, Providian Financial Corp.
Appearance on list: First
Years in business: 11
Anna Dopkin has a thing for models. Maybe it's her quantitative background. Dopkin, who earned an undergraduate degree in business from the University of Pennsylvania's Wharton School, spent years structuring and trading fiendishly complex collateralized mortgage obligations at Goldman, Sachs & Co. in New York, then moved to the firm's London office to work on European securitizations. In 1996, at age 29, she moved to the buy side, joining T. Rowe Price Associates as an analyst covering financial companies. Earlier this year she expanded her duties to become co-manager of the firm's $270 million financial services fund.
A close reader of footnotes, Dopkin is known for her penetrating insights and long hours. "I more often than not get e-mails from her over the weekend," says one Wall Street researcher. Sell-side analysts acknowledge that Dopkin chiefly uses Wall Street research models to compare with and improve her own , and rarely relies on their conclusions. Rather, she taps sell-side analysts for their specific strengths, such as proprietary data, and even then tends to rework their numbers.
In the summer of 1999, for example, Dopkin zeroed in on the recommendations of a few Wall Street contrarians who were bucking their peers, negative outlook on mortgage insurers and arguing that the liquidation values of some companies, like PMI Group and Radian Group, exceeded their market values. "I spent an entire weekend just going through and verifying that I believed in their analysis and seeing how I could enhance it," Dopkin says. She adds that one analyst,s three-part model and another's one-part model helped her devise her own two-part version. "Someone can tell you a stock is trading under book value, but you must look at the analysis and study it to be sure. In this case, I analyzed them and bought the argument."
Performing that kind of in-depth analysis takes its toll, since Dopkin officially covers almost 40 companies , unofficially, it's closer to 100. Dopkin says she tries to devote her mornings to keeping in touch with analysts and management and her afternoons to more analytical pursuits. But market eruptions and colleagues, requests during the workday tend to make evenings and weekends more conducive to analysis. Now that she's taken on new responsibilities as a portfolio co-manager, Dopkin says she's looking to shrink her official coverage to 25 companies.
She finds time to talk to a handful of sell-side analysts at least once a week, and an additional 20 to 25 at least a few times a month. She considers a dozen of them "absolutely critical" and says she regards many others highly, in large part as sources to query about Wall Street's consensus on issues. She explains that even after she predicts a downturn in a stock, shares could continue to rise for several months because the consensus has not yet reached her conclusion. In addition to canvassing the sell side, she tries to visit companies, headquarters at least once a year. She makes frequent phone calls to managers and questions them face-to-face at sell-side conferences. Make no mistake , Dopkin carefully assesses management.
"In general, I value honesty and straightforwardness a tremendous amount. If I feel a company has come into a meeting and lied, I find it very difficult to think highly of the stock for a long time , a couple of years," she says.
Her no-nonsense approach kept her out of the subprime lender market when stocks got pummeled by a Securities and Exchange Commission crackdown on aggressive accounting tactics; it's also helped her "pick the right ones in an industry that isn,t currently filled with great players," in one observer,s words.
Two examples: She sold Finova Group throughout 1999, when the stock fell from 55 a share to 35; by this September the stock had plummeted to the single digits. Meanwhile, she piled into Heller Financial late last year, when its stock was in the high teens. It touched 30 a share in September.
DENNIS WALSH
State Street Research & Management Co.
Age: 40
Sector: Energy
Favorite stocks: Anadarko Petroleum Corp., National Oilwell, Western Gas Resources
Appearance on list: First
Years in business: 15
Dennis Walsh, sums up one Wall Street analyst, is "one of the most insightful, knowledgeable individuals on the buy side that I,ve ever met. He has a way of getting to know companies, and I,ve seen him ask questions of management that have made them squirm , but in a good way. He gets the information he wants."
Efficiency and generosity are two qualities often attributed to energy analyst Walsh. Notes one sell-side researcher: "He does his homework, and he's very direct. He knows what he wants to know and asks it. He doesn,t want the 30-minute version, he wants the 30-second version." Another says: "He gives as much as he takes or more. . . . He shares what he learns."
Although Walsh's interest in investing began in college, his route to stock analysis was indirect. After earning an economics degree from the University of Massachusetts at Amherst, he joined Fidelity Investments on the service side, working on computer systems. He left Fidelity for a brief stint as a stockbroker, then landed a research job at a small Boston firm, Bounty Management, in 1990. Walsh started as a generalist, but as Bounty began to focus on energy stocks, he got hooked. He joined Fleet Investment Advisors as an energy analyst in 1994 and moved over to State Street Research & Management Co. in January 1999. "I like State Street because they have a strong energy focus and a natural resources fund," he says. Walsh devotes about two thirds of his time to what State Street calls central research and one third to providing specific macro analysis and stock selection for the $700 million State Street Research Global Resources Fund, which is managed by Daniel Rice.
"I love being an energy analyst," says Walsh, who,s also a Civil War buff and weekend soccer coach. "There are a lot of moving parts, and it's fun to figure out how they interrelate and what the result will be. Plus, when energy moves, it moves in great magnitude and has a big impact. You can make a lot of money."
For an energy analyst, of course, the past few years have been exciting: Oil prices plunged in the aftermath of the 1997,,98 Asian crisis but more recently have soared, driving up the value of producers like ExxonMobil Corp. Walsh remains bullish on the energy group, especially natural-gas stocks, including Anadarko Petroleum Corp. and EOG Resources, both pure-play exploration and production companies.
"We think that the demand for electricity is going to increase 3 to 4 percent per year, ahead of the 1 to 2 percent consensus forecast," says Walsh. This anticipated demand, coupled with the fact that the only source of new electric-power generation is from natural-gas-fired plants (in the U.S. there is no new construction of nuclear or coal-burning power plants), leads Walsh to favor companies poised to benefit from continued high natural-gas prices.
"He was early in grasping the implications of the electricity business on the demand for natural gas," says one sell-sider, noting that electric power demand drives a portion of natural-gas demand. As electricity demand rises, so does the demand for natural gas. "Most people believe that electric power is divorced from other types of power," the sell-sider says. "It's one of the broad trends he recognized before most of his peers."
NORMAN FIDEL
Alliance Capital Management
Age: 55
Sector: Health care
Favorite stocks: IMS Health, Pfizer, Schering-Plough Corp.
Appearance on list: Fifth
Years in business: 31
Before politicians tackle the intricacies of health care reform , shoring up Medicare, making prescription drugs more affordable for seniors or steering patients to HMOs , they might give Norman Fidel a call. Few analysts know the industry as well.
"He's the godfather of health care, with a tremendous command of the whole field," according to one Wall Street researcher. Adds another, "Norm knows more about all the health sectors than anyone else on the buy side." He has spent 31 years covering everything from pharmaceuticals companies to health care services.
Fidel's long experience helps him spot contrarian opportunities. Hospitals fell out of favor in March 1998 following deep government cuts in Medicare reimbursements. But by mid-1999 Fidel began buying select hospital stocks, including Health Management Associates, a rural hospital chain that, he notes, enjoys scarce competition and relatively little cost pressure from managed care. He piled into HMA in September 1999, when the stock was at 93/8; by the end of this September, shares were trading at 213/16 , up 126 percent.
Fidel also championed several drug stocks in January of this year, when sector rotation made pharmaceuticals less glamorous than Internet and technology plays, despite a rich drug pipeline and strong industry fundamentals. While the market pummeled the drug sector, Fidel loaded up (a tad early, to be sure). In the second quarter of this year, he reaped his reward when pharmaceuticals rose more than 30 percent. "Norm frequently goes against the crowd to make a lot of money," says one observer.
Fidel's years on the beat continue to pay off: The nation's population is aging, making the drug sector more important. As the government's role inexorably grows, knowledge of federal policy is increasingly critical , and one of Fidel's particular strengths. "He knows how to ride out a terrifically volatile set of stocks, which often trade on the capricious whims of politicians rather than fundamentals alone," says one Wall Street researcher. Reports another, "He can filter the reality from the rhetoric coming out of Washington."
Sell-siders relish the challenge of conversing with Fidel, who uses the Socratic method to dissect their investment ideas and stock analyses. "Whatever I say, he,ll always go to the other side of the argument, just to learn more," says one analyst, recalling a debate the two had earlier this year about the respective implications for health care of an Al Gore or George W. Bush presidency.
"His conclusions are ultimately his own, and he holds his cards close to the vest. But in the meantime, he listens, probes and asks lots of questions," one sell-side counterpart reports. Fidel admits to a "perfectionism that makes me the harshest judge of myself." But he says that his trademark style of cross-examination has a purpose: "My job is the pursuit of truth, and the only fruitful way to learn is to ask questions. That ensures I,ll never be bored."
A Connecticut native, Fidel received a finance degree from Babson College in Massachusetts before earning his MBA at New York University. He launched his career as a health care stock specialist at the old Irving Trust Co. in 1969, then moved to Eberstadt Asset Management in 1980. He's tracked health care for Alliance Capital Management since it acquired Eberstadt in 1985.
Given his senior status, Fidel wears two hats at Alliance. He's both the lead health care analyst and the primary health care fund manager, overseeing $17 billion in assets, including $2 billion in seven dedicated funds.
Observers say Fidel respects the complexity of his stocks and maintains a monkish devotion to work. "It took the first 15 years just to become knowledgeable. I was compulsive. I,d work all night until I went to sleep. I didn,t have a life," he acknowledges, adding that he has reduced his work schedule , to about 60 hours a week.
ERIC WONG
TCW Asset Management Co.
Age: 30
Sector: Macro
Favorite credits: Adaptec, Pep Boys (Manny, Moe & Jack), Tower Automotive
Appearance on list: First
Years in business: 3
To make money in the esoteric arena of convertibles, investors need expertise in not just one, but three, investment disciplines: stocks, bonds and credit analysis. Eric Wong has earned a reputation for being equally adept at all three.
One of only a handful of players in the $200 billion market, Wong is nothing if not a straightforward, diligent researcher. His willingness to share razor-sharp insights , coupled with a gregarious, outgoing manner , have made him a favorite of Wall Street's picky researchers. "His work has detail and depth," says one analyst. Adds another, "Sometimes he,ll call up on something and force us to sharpen a pencil."
In August 1999 Wong, who often shares his ideas with the sell side, had plenty of Street analysts running for their pencil sharpeners. He noticed that the bonds of Santa Clara, California, software management company Vantive Corp. were trading in the low 70s and yielding more than 17 percent, while the stock was languishing in the single digits. Vantive was unrated, so Wong scrutinized the company himself. He decided that despite a weak reputation, Vantive could afford to service its bonds. Furthermore, he reasoned that decent credit quality plus a low stock price made the company a prime takeover candidate, and he started buying.
Less than two months later, on October 11, Pleasanton, California, software maker PeopleSoft announced that it would acquire Vantive for some $433 million in stock. Vantive's bond price shot up to the low 90s, and its share price surged from $9 to $12.
"He looked at the underlying business fundamentals," says one analyst. "That was the piece that a lot of other people missed."
Wong grew up in New York. His father, a record album designer, and his mother, a gourmet cooking teacher, pushed their four children toward professional careers. "It was a typical Asian family, focused on maths and sciences," he says. "The idea was to be a doctor or a lawyer."
He chose finance, after landing a job as a trading desk assistant at Salomon Brothers to help foot the bill for New York University. "It paid so much better than checking IDs at the gym," notes Wong, who envied the affluent lifestyles of the traders.
Economics degree in hand, he entered a two-year analytical training program at Merrill Lynch & Co. But by 1994, with the bond market in disarray and U.S. stocks slumping, he began to consider the benefits of working on the buy side. "The Soros fund was making as much as all of Salomon Brothers put together," he says.
First, Wong went to business school at UCLA. After earning his MBA, he joined Los Angeles,based TCW Asset Management Co., a large buyer of convertible securities. The onetime Wall Streeter fell under the spell of Southern California, becoming an avid biker and moving to the Santa Monica mountains, just a few blocks from the beach. Wong also enjoys golf and running , this fall he was training for a March 2001 marathon in Los Angeles , but his life isn,t all about sun and fund flows. He's passionate about blackjack and often visits Las Vegas. "Vegas is much bigger than Atlantic City," he says, with a lilt in his voice. "Much more deviant."
JEREMY TENNENBAUM
Wellington Management Co.
Age: 46
Sectors: Capital goods/industrials, consumer
Favorite stocks: Eaton Corp., Honeywell
Appearance on list: Second
Years in business: 14
When General Motors Corp. reported a 5.5 percent drop in third-quarter net income last month because of problems in Europe that included pricing pressures and lower sales, Jeremy Tennenbaum was not surprised. He had just returned from the Paris Auto Show, where he,d discussed the increasingly competitive European market with company executives and car dealers.
For many analysts, attending the biennial Paris show on top of the spring exhibitions in Detroit and Geneva would have been beyond the call of duty. But Tennenbaum is on a constant quest for information about the industries he covers, which range from autos to capital goods to diversified industrials. He spends at least a third of his days on the road, shuttling around the U.S., Europe and Japan. Fellow analysts say he never misses a company meeting. Based in Wellington Management Co.'s Radnor, Pennsylvania, office, he visits the firm's Boston headquarters twice a month. And he has no qualms about picking up the phone on the weekend or paying a visit to company officials , even if he doesn,t know them. "He's like a private investigator," says one sell-side auto analyst.
Equally impressive to Tennenbaum's counterparts on Wall Street is his extraordinary ability to retain the information he gathers. This is apparent when he grills company executives at analyst meetings. "He is direct , not abrasive, but very direct," says a fellow analyst. Others note that they never need to update Tennenbaum on the latest developments. "I get more out of our relationship than he does," admits one.
Tennenbaum is a rare breed on the buy side: a true expert on the industries he follows. Many buy-side analysts spend fewer than two years covering any given industry before they are rotated to another spot, usually en route to becoming portfolio managers. Tennenbaum, by contrast, has tracked the same industries since he joined Wellington's central research department in 1994, after a two-year stint as an analyst for the firm's Value/Yield Fund. Before that, he worked on the sell side for six years at Salomon Brothers, as an aerospace and defense analyst and an investment banker in industrial and technology companies. (He holds a master's degree in finance from the Massachusetts Institute of Technology's Sloan School of Management.)
Tennenbaum credits his employer for encouraging analysts to follow the same group of industries throughout their careers. "You develop a core of expertise that way," he explains. He also applauds the firm's decision, about five years ago, that Wellington analysts would cover fewer industries but cover them globally. Tracking worldwide developments creates what Tennenbaum calls a "positive circle" of information flow, which helped him make immediate sense of GM,s third-quarter results last month. "The same problems affect companies anywhere, whether it's Detroit or Stuttgart," he notes.
For Tennenbaum, industry knowledge is the most important asset an analyst can bring to the table. When it comes to numbers, he takes what he calls a "selective" approach. Rather than labor over his own earnings forecasts, he spends time tracking down the figures that tell the real story. He is more likely to recall, for example, how much an automaker lost in Latin America over a certain time period than he is to remember the same company's overall results a year ago. "I tend to focus on long-term issues that are going to recur," he says.
Tennenbaum finds that one of his biggest challenges on the buy side is managing the information flow. "It,s like sipping from a fire hose," he says. It won,t get easier any time soon. The industries Tennenbaum covers are undergoing massive change as they race to catch up with the latest advances in technology, prompting ever-more research reports and e-mail messages. "We,ve barely begun to scratch the surface of the impact that the computer and the Internet are going to have on my old-line industries," Tennenbaum says. "Long term, it,s very exciting."
PATRICK RENDA
J&W Seligman & Co.
Age: 32
Sector: Technology
Favorite stocks: Amkor Technology, Orbotech, SCI Systems
Appearance on list: First
Years in business: 4
Patrick Renda avoids his chair during work hours. "I like to get out from behind my desk and talk to company management and to customers," he says. "That complements the academic side of investing."
Renda is hailed for the breadth and depth of his knowledge of technology, especially electronic manufacturing services, or EMS. "He was one of the first buy-siders to understand the strong dynamic of EMS and to capitalize on it with his investments," says one Wall Street analyst. He also wins respect for his ability to keep the lines of communication open both with company managements and with sell-side analysts.
Renda earned a business communications degree in 1991 from the University of Southern California and worked as a paralegal before deciding to pursue his childhood dream of working for the Street. He joined Seligman in 1997 as a research assistant, became an analyst in January 1998 and was promoted one year later to his current post as investment officer for the New York,based Seligman Technology Group, recommending, buying and selling stocks from his office in Palo Alto, California. Renda employs a bottom-up, quantitative approach, poring over income statements and balance sheets and weighing market valuations carefully , an investment methodology instilled in him by his mentor, Paul Wick, who heads up the technology group. Even so, he says, "My best asset is to step back and take a macro look at an industry and get the big picture."
He frequently displays a contrarian streak. Renda, says one sell-side analyst, is "willing to take a look at opportunities that aren,t mainstream. He looks at [a company] that is not well covered or misunderstood and does his own research without relying heavily on the sell side."
Renda earns admiration for three astute buys: Smart Modular Technologies, DII Group and Hadco Corp.
He started accumulating shares of Smart Modular, a Fremont, California, memory module assembler, in May 1997. Wall Street gave the company a thumbs-down a year later, sending its shares down from 24 to 121/2 in one day, but Renda refused to give up , he increased Seligman's position. "The sentiment was negative, and he chose to buy on that weakness," says one observer. Renda believed that the company had a clean balance sheet, an attractive valuation, solid management and a strong team of design engineers. "I have a tendency to drill down and find undervalued assets," he says. Then Solectron Corp. , the world's largest EMS provider , announced that it was acquiring Smart Modular. Seligman's cost per share of Smart Modular had averaged $20; when the $2 billion deal was completed in December 1999, the stock was trading at $44.50. With a 20 percent stake, Seligman was the largest shareholder; Renda's investment earned a 122 percent return for Seligman's Global Technology Fund and a 63 percent return for the Seligman Communications & Information Fund.
He started buying DII Group, a Colorado-based EMS company, in the fall of 1998. Wall Street was dissatisfied with management, arguing that a few divisions were stalling company growth. But Renda stuck with DII, which was focusing on its core business of manufacturing print circuit boards. "They were putting the right pieces in place," he says. Before its November 1999 acquisition by Flextronics International, DII was trading at 21 per share. By the time the transaction closed this April, DII's stock had shot up to 70.
At Renda's recommendation, Seligman had also become the largest shareholder in Hadco, at an average cost of $45 a share, before it was acquired by Sanmina Corp. this April. Hadco stock climbed to $116 on June 26, when the $1.3 billion deal closed. Like DII, Hadco makes print circuit boards , a cyclical industry that ebbs and flows with demand , but Renda notes that the company has the advantage of manufacturing highly specialized circuit boards.
In these times of volatile markets, Renda says it,s easy for buy-siders to "start second-guessing their investments." His advice: Always maintain "conviction in your abilities and in the work that you,re doing."
