Here it is, October, and time for this magazine to announce its annual selection of the best equity analysts in America. Meanwhile, TV, radio and print media alike are swamped with news about disgraced researchers and major Wall Street firms negotiating with regulators to settle charges of abusive practices.
Let’s just say that we, too, feel a little bit conflicted -- disgusted by the malefactors, yet equally aware that, after nearly three years of wretched markets, good advice is more valuable than ever. The question is whether traditional research is too tarnished to be of any use. Simply put: Can investors still get good advice from Wall Street?
We believe they can, and we think that this year’s edition of the All-America Research Team, our 31st, reflects that. Yes, there are a number of bad apples in the business, and, yes, far too many analysts got carried away with the excesses of the bull market and the lure of investment banking riches. But, as you’ll see (“The 2002 All-America Research Team”), many analysts have withstood pressure from companies, from investment banking departments and even from regulators and made tough calls.
Consider Morgan Stanley’s Simon Flannery, who with a colleague, Trevor Harris, exposed dubious accounting practices at Qwest Communications International in June 2001, when it was trading at 31. The company froze out the analysts, threatened to deny Morgan Stanley business and prompted the New York Stock Exchange to investigate its allegations that Flannery and Morgan Stanley had downgraded the stock to profit by shorting shares. Flannery and his firm were exonerated, Qwest CEO Joseph Nacchio was ousted, and the company’s shares recently traded at 3 (see People). You’ll read about other tough calls by the members of this year’s team.
A national debate is on over the role and function of securities analysts. The research business has received a black eye. It’s well deserved. But it’s just as important to point out, to celebrate, the achievements of those who are doing truly outstanding work, despite all the pressures and distractions. That is why we are pleased to present this year’s best analysts, selected by a record number of voters from the biggest institutional investors in this country and around the world.
