The research must come first, says A.M. (Toni) Sacconaghi, 46. If you do truly great research, good and even great stock calls will come as a natural result, he explains. As an analyst the goal should be to deliver outstanding research that your clients can depend upon and use to make their own decisions whether or not their ultimate conclusion agrees with yours.
Sacconaghi has a reputation for delivering outstanding research, and he shares the credit for his success with his employer, Sanford C. Bernstein & Co. We dont have banking or other distractions to divert our attention from the research, he says. He sees the firm as a perfect fit for the way he prefers to work.
He joined Bernstein in 1998 after working as a technology consultant at McKinsey & Co. and launched coverage of the IT hardware sector in the fall of 1999. The following year, in June, he made one of the first great contrarian calls of his career when he downgraded Hewlett-Packard Co. from outperform to market perform and cut his earnings forecast after meeting with executives of the Palo Alto, Californiabased manufacturer of computers and peripherals. He thought their growth forecasts were too optimistic and believed the shares, then at a split-adjusted $55.13, were fully valued. The stock price slid nearly 7 percent on the day of Sacconaghis downgrade; thats when it became clear to me that investors were listening, he says. At ensuing company meetings more and more investors wanted to speak with me.
That came as a bit of a surprise. As an analyst you learn pretty quickly if you are right or wrong, he says. I thought things were going well at the beginning of my career, but I didnt know that until the market is listening to you in real time, stock prices dont begin moving the way you thought they would and the things you believe begin to materialize.
In November, HP stunned the Street when it reported that results for that years fiscal fourth quarter, which ended in October, fell 10 cents per share short of consensus expectations. By then the stock had plummeted 45.7 percent, to $29.96; during the same period the sector declined by 20.6 percent. Investors showed their appreciation by voting Sacconaghi straight in to second place in the Enterprise Hardware sector of the 2001 All-America Research Team. He has ranked every year since twice in 2004, when he was No. 1 in IT Hardware and a runner-up in Imaging Technology for a total of 12 appearances to date. This year marks his tenth consecutive first-place finish in IT Hardware.
Sacconaghi made another great contrarian call in 2005. At that time IBM Corp. had a reputation for being opaque, slow growing and a company that did a lot of financial engineering, he says. Even so, he believed that the Armonk, New Yorkbased technology and computer consulting outfit was compellingly valued, would show improvement in its services business and had several positive forces that should help results. He upgraded the stock from market perform to outperform in July of that year, at $72.36, and again the market responded immediately. By the time he moved it back to market perform, in March 2011, the shares had rocketed 117.8 percent, to $157.63, trumping even the sectors impressive 102.5 percent gain over that period.
Similar great calls pepper his career today, and he credits them all to his intense focus on research and a fluid adaptation to responses he receives from many sources. I embrace and find nourishing all feedback and find it the ultimate platform on which to improve my performance, he says.
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