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The 50th All-America Research Team: New Stars
Ten analysts each make their first No. 1 appearance in the 2021 ranking.
It’s the 50th year of the All-America Research Team — and these analysts are just getting started. This year, ten star analysts have earned No. 1 spots for the first time after paving the way for themselves and their teams in sectors like technology; industrials; and environmental, social, and governance research — a new sector added this year. From their best calls to their deepest challenges, meet the freshest faces of sell-side research.
Sterling Auty, JPMorgan Chase
Technology, Media, & Communications — Software/Small- & Midcap (No. 1)
Technology, Media, & Communications — Software/Large-Cap (Runner-up)
What’s the best call you’ve ever made?
In our 2021 outlook report published on December 9, we downgraded a number of high-multiple stocks, including Zoom, and upgraded a number of cyclically sensitive stocks, including Intuit and Verisign, on the thesis that, moving past the pandemic, cyclical expansion would benefit the latter group and perhaps bring higher interest rates that would weigh on the valuation of higher-multiple stocks. We subsequently witnessed the software market take a bear market move, down just over 20 percent from the first part of February to the first part of May, while the S&P 500 gained just over 8 percent. Over that time frame, Zoom was down 32 percent, while Intuit was roughly flat.
What’s the worst call you’ve ever made?
Investors that have been around for a while might remember Motricity, a provider of mobile web application software for wireless providers. In July 2010, we were bullish on the prospects to continue to add carrier customers in Asia and Europe, but the carrier internet solutions were quickly supplanted by powerful smartphones offering full internet browsing. With that, the price of Motricity, renamed Voltari, came down over 80 percent, while the S&P 500 climbed 15 percent.
What’s the biggest challenge the sell-side research industry faces?
The biggest challenge is finding the right talent to build the teams to cover an ever-expanding universe of companies. There are so many opportunities that young people see to go directly into industry or start companies as a path to success. This comes at a time when analysts are covering more companies per capita than ever. That is a challenge. While the senior analyst might receive the accolades, it truly is a team effort.
What’s the biggest challenge for the sectors you cover?
The biggest challenge is a lack of comparability of companies caused by accounting rules. ASC 606, which governs revenue recognition by software companies, has caused confusion and created a situation where the income statement is no longer a good reflection of the current health of many software companies. While some good has come from the regulation, such as increased transparency for backlog, it has caused many more challenges in trying to compare software companies in different segments of the industry.
What does it mean to be an all-star analyst?
[Having] the ability to educate the client in a clear and concise manner as to how a company makes money, the market opportunity it is pursuing, its competitive differentiation, and the durability of that advantage. This enables the analyst to provide a model that not only is a reflection of that opportunity, but is easy enough to understand and modify to factor in the client’s view of the situation. [Clients want to know:] Does the analyst have a good grasp of when and why stocks in their sector should be bought or sold?
Sami Badri, Credit Suisse
Technology, Media, & Telecommunications — Telecom & Networking Equipment (No. 1)
Technology, Media, & Telecommunications — Communications Infrastructure (No. 3)
What’s the best call you’ve ever made?
The best call was my very assertive view on Motorola Solutions outperforming investor expectations starting in June 2020, when there were challenges for Motorola’s customers and revenue outlook. My team and I leaned in heavily, unpacking fundamental aspects and dissecting state and municipal budgets in unprecedented granularity, proving little was at risk for Motorola and its customers. At the time, apparently some investors thought I was being too optimistic with my research findings and told me my “bullishness was unrealistic.” We published literally every week, multiple times, with updated data points to support our thesis, which was a lot of work for a single company in the coverage. We were on the correct side of that view.
What’s the worst call you’ve ever made?
It was my high-conviction call on CommScope following the acquisition of Arris International in 2019. I remember spending two full weekends building up what others told me was the most comprehensive merger model and thesis on the sell side. I was even told my constructive outlook and model forecasts were too conservative. We were all wrong. It turned out CommScope’s customers began pulling back their spending, which blindsided everyone. To this day, I remember that moment realizing I was wrong all too well, and it has humbled me as a person. But it has enhanced my ability as an analyst to detect subtleties and nuances in equity research coverage, a silver lining from a very difficult experience.
What’s the biggest challenge the sell-side research industry faces?
The biggest challenge in my view is understanding what our clients value most in sell-side equity research coverage and during what time periods. There is a pendulum of demand for research products — ideas, sector views, models, etc. Corporate access is constantly evolving, and getting it right for the desired sectors every week and month is a difficult balancing act. Ideally, we are able to service both sides of this demand curve, but it is never perfectly optimized in reality, despite all of our strategizing and planning. By mastering this balance as an analyst, I believe a sell-side researcher can gain greater mindshare with investors and ultimately add more value, either in the form of research ideas or corporate access.
What’s the biggest challenge for the sectors you cover?
The biggest challenge is making sure investors are engaged and excited about the technological position that networking equipment, data centers, towers, and fiber assets maintain in the technology stack. There is a significant amount of interest and excitement in various areas of tech, and I believe my sectors sometimes do not get the same visibility. As these major themes continue to grow — including artificial intelligence, the cloud, 5G, and cybersecurity — I expect my sectors will become a greater part of the investor narrative.
What does it mean to be an all-star analyst?
In two words: more responsibility. I feel more responsible as an analyst for having a research view and being available for our clients, corporates, and other counterparties as market dynamics unfold, impacting the sectors and companies under coverage.
Dennis DeBusschere, Evercore ISI*
Macro — Portfolio Strategy (No. 1)
Macro — Equity-Linked Strategies (No. 2)
Macro — Quantitative Research (Runner-up)
What’s the best call you’ve ever made?
Long equities, particularly growth stocks, in late March 2020. The impetus of that was human ingenuity. We took a qualitative approach. On the bottom-up basis, it became very clear to us that unless the world truly did fall apart and we never recovered, the market was absolutely cheap under a consistently dire scenario. Given how we could still function as a society by working from home, the stocks in the S&P 500 uniquely benefited relative to anything else in the economy.
What’s the worst call you’ve ever made?
We were stubbornly long financials through 2018. We had thought the economic growth backdrop was really robust, but we didn’t do a good enough job listening to the market. Despite the fact that the Fed was raising rates, financials lagged. Economic growth outlook started to taper off. There were also the corporate tax cut stimulus and the trade war, which was particularly negative. We probably should have acted or appreciated the [influence of] the trade war much quicker.
What’s the biggest challenge the sell-side research industry faces?
Not giving in to Twitter-like hysterics. In my view, everybody is increasingly trying to get more noticed by resorting to sensational headlines, as opposed to refocusing on providing knowledge and understanding. [Analysts are getting] more sensational and less fundamentally grounded. I think sell-side people have realized that it’s important to generate clicks, [but] sometimes they get carried away.
What’s the biggest challenge for the sectors you cover?
Being prepared for how quickly narratives change and what that means for different sectors and factors. At the beginning of September, stagflation was a theme that a lot of people were talking about. As a result, they positioned portfolios for weakening economic growth. But the narratives changed very quickly over the month. The growth outlook was not that bad, and you saw significant outperformance of cyclicals relative to defensives. So the biggest challenge for people facing our sector is understanding which narrative they should pay attention to.
What does it mean to be an all-star analyst?
An all-star analyst should be a flexible thinker. You need to be able to change your mind and be humble. If you can’t do that, Mr. Market will eventually find a way to humble you in the hard way.
*DeBusschere left Evercore ISI in August to start independent boutique 22V Research.
Elyse Greenspan, Wells Fargo Securities
Financial Institutions — Insurance/Nonlife (No. 1)
What’s the best call you’ve ever made?
Upgrade of The Hartford to overweight in April 2020, during the depths of the pandemic. Our in-depth fundamental research gave us conviction that the extent of HIG’s underperformance versus the group represented an overreaction, especially in light of a robust outlook for the company.
What’s the worst call you’ve ever made?
Upgrading Aon to overweight in February 2020, in advance of the company announcing that it was acquiring Willis Towers Watson (before the deal got pulled this year). While in the end it was a good call, the stock retraced with the deal announcement, which would have presented a better entry point into the name.
What’s the biggest challenge the sell-side research industry faces?
In an extremely efficient market, where information is disseminated and digested almost instantaneously, finding alpha opportunities for buy-side clients remains a challenge and top priority.
What’s the biggest challenge for the sector you cover?
Inflation is a big risk for the insurance sector. We have seen loss trends spike for personal auto insurers, reflective of supply chain issues and the recent pickup in driving levels. We have yet to see rising inflationary levels impact the longer-tail commercial lines writers, but that is something we are paying attention to.
What does it mean to be an all-star analyst?
Being a trusted, knowledgeable, and go-to resource with a combination of historical context and real-time ability to help clients navigate the evolving insurance landscape.
Ken Hoexter, BofA Securities
Capital Goods/Industrials — Shipping (No. 1)
Capital Goods/Industrials — Airfreight & Surface Transportation (No. 2)
What’s the best call you’ve ever made?
The best call I’ve ever made in my career was when we upgraded the sector in March 2008, which turned out to be the absolute low day after the great financial crisis. Our data was telling us things were flatlining at the bottom, so everything was either going to go bankrupt or we were inflecting higher off of a base. Sometimes you get lucky, but sometimes it’s good to watch the data and use it to make the calls.
For the sector this year, it would be Triton International, which we downgraded back in February 2019 as we were looking at overcapacity in the industry and the China trade war. We then upgraded in July 2020, as demand and global trade were turning out of Covid. As a container lessor in the shipping world, [Triton’s] product became very much in demand.
What’s the worst call you’ve ever made?
The worst call was in early 2003 when our macro economists were looking at a double dip. We over-relied on the macro call and downgraded a bunch of key names. But then our own data showed a quick turn in the economy, and we acted quickly to upgrade. I learned to not stay stuck in old ratings. I thought we would get pushback from investors at changing the rating so quickly, but I learned investors really appreciated a willingness to look at fresh data.
What’s the biggest challenge the sell-side research industry faces?
The biggest challenge in shipping is apathy among the stocks because you’ve got, in some cases, smaller caps given a longer market downturn after significant overcapacity. The biggest challenge facing the sell-side industry is, in a world of data and speed, searching for proprietary data that’s value-oriented and provides solid insight to investors.
What’s the biggest challenge for the sectors you cover?
The biggest challenge facing the sector right now is the massive need for capacity. Pricing is improving, but in the container sector, there’s a wall of orders coming in two years. You’ve got 22 percent of the order book that’s going to hit the water over the next few years. For right now, there’s still huge demand, and every ship is working. But then you see this wall of capacity that’s going to hit. Obviously, the market demand may not be as tight then as it is right now, coming out of Covid-19. So that, along with keeping investor interest in a very fragmented group that is finding its maturity as public entities, is the biggest challenge facing the shipping sector.
What does it mean to be an all-star analyst?
Never-ending dedication, going above job expectations by always thinking ahead, and creating true value-add insight for investors. It means always being available, keeping detailed up-to-date models, and providing proprietary products, such as our 20-minute shipping call updates, our biweekly proprietary Truck Shipper Survey — which offers real-time insight into market trends and demand shifts — and our weekly Transport Tracker, which includes a differentiated “thought of the week” each week to provide insight about what is topical for investors looking into the week ahead.
Arun Jayaram, JPMorgan Chase
Energy — Oil & Gas Exploration & Production (No. 1)
What’s the best call you’ve ever made?
My best call was my cautious call on Anadarko Petroleum Corp. in early 2012, which was a consensus long. I launched coverage of the E&P sector at that time, and our analysis suggested that the market was underappreciating the potential for significant environmental liabilities associated with the company’s 2005 merger with Kerr-McGee. In particular, our work suggested that APC could be liable for fraudulent conveyance related to one of KMG’s spun-out entities called Tronox, which could subject APC to several billion dollars of damages; our analysis suggested up to $5 billion-plus in potential liabilities. In December 2013, the judge ruled against APC, with damages ranging between $5.2 billion and $14.2 billion plus attorney fees, which significantly weighed on APC shares. APC management subsequently reached a settlement with the plaintiffs for $5.15 billion in April 2014.
What’s the worst call you’ve ever made?
My worst call was my October 2016 upgrade of Range Resources Corp. to overweight from neutral. Our upgrade coincided with 24 percent underperformance relative to its natural gas peers after it announced a $4.4 billion transaction to merge with Memorial Resources Development in May 2016. We felt the combination of improving natural gas fundamentals and optionality to an emerging exploration play south of MRD’s Terryville gas field would drive outperformance in RRC shares after the meaningful underperformance. Not only did our favorable thesis not play out, but RRC was one of the worst-performing stocks in the entire E&P sector in 2017. In hindsight, we focused on the potential optionality to the emerging exploration play rather than how drilling results at the core Terryville asset were weaker than we anticipated, which led to balance-sheet concerns at the company amid weakness in natural gas prices.
What’s the biggest challenge the sell-side research industry faces?
I began my career in equity research in 1998. Since then, the cash equities business has faced a lot of challenges, from decimalization in August 2000 to MiFID II in Europe in January 2018. But a hallmark of the profession has been resiliency and the ability to adapt to changing market dynamics, including significant regulatory changes.
In my view, the biggest challenge facing the sell side is the increase in passive investment strategies, including by quant-focused investors. Quants are utilizing programmed algorithms to trade, buy, and sell stocks instead of interfacing with the sell side. While increases in passive investing strategies look to be secular in nature, I believe that research analysts will continue to play an important role in the investment process, particularly in cyclical industries such as energy, as well as during periods of higher volatility.
What’s the biggest challenge for the sector you cover?
The biggest challenge facing the sector is energy transition, which is poised to support peak demand for hydrocarbons at an accelerated pace. The business model of the U.S. E&P sector is focused on extracting oil and gas reserves from resources such as shale, the deep water, and other conventional reservoirs. While the successful extraction of significant oil and gas production from U.S. shale has provided societal and economic benefits, such as lowering global energy costs, the growing focus on climate change has created an uncertain demand outlook for fossil fuels such as oil and natural gas.
From an investment perspective, this opaqueness around longer-term demand patterns has contributed to a derating of sector multiples given growing investor uncertainty on the terminal value of energy equities. Given these industry dynamics, the most prudent path forward is for energy companies to reduce their reinvestment rates and return excess cash to shareholders instead of growing into an uncertain demand picture. Longer-term, we see better demand prospects for natural gas over oil as a bridge fuel for the looming energy transition.
What does it mean to be an all-star analyst?
One of the most valuable attributes of a sell-side research analyst is industry knowledge, including views on how industry dynamics could unfold over the long term. In fact, most successful buy-siders place greater importance on macro work related to an industry than on individual company research. The buy side views the sell side as a trusted adviser and puts a high premium on trust and unfiltered opinions. Clients generally value easy-to-use financial models as well as a sound investment framework, which can be utilized for stock selection. Finally, the buy side does tend to value sell-side analysts that have good relationships with and access to management teams from their covered companies.
Alex Kramm, UBS
Capital Goods/Industrials — Business, Education, & Professional Services (No. 1)
What’s the best call you’ve ever made?
We have been bullish on MSCI for several years. First, we highlighted the significant upside potential from the company’s ability to expand margins and utilize its balance sheet more. More recently, we were early in identifying the company as a big winner from demand for ESG-related data and solutions, which has driven significant multiple expansion.
What’s the worst call you’ve ever made?
My sector has done really well over the last few years, so our biggest mistake has been to be negative on certain names for too long. We have had sell ratings on [FactSet Research Systems] and [Verisk Analytics] for a few years, and while both stocks have underperformed their peers, they have still been great stocks relative to the market. We actually upgraded both of them this year.
What’s the biggest challenge the sell-side research industry faces?
I think sell-side analysts are constantly being asked to do more, and often with fewer resources. At the same time, there are nontraditional firms starting up that are entirely focused on providing some services that have historically come from sell-side firms, like primary data, corporate access, expert insights, etc. Nevertheless, sell-side research continues to reinvent itself constantly, and I still think there is a bright future.
What’s the biggest challenge for the sector you cover?
Most information services companies in our coverage have enjoyed strong end-market demand, high barriers to entry, and pricing power. At the same time, investors have increasingly appreciated that strong industry position and valuation multiples have expanded significantly. From an industry perspective, we worry about any new disrupters, in particular if incumbents push too much price. From a stock perspective, valuations may be at risk in a higher–interest rate environment.
What does it mean to be an all-star analyst?
It’s great to see that the hard work my team has put in over the last few years is being recognized by investors. We constantly push ourselves to bring our clients investment insights that they cannot find anywhere else. On a day-to-day basis, that can mean a lot of things, as investors have different demands. I think it all starts with industry knowledge. Clearly, you need to know the companies you cover, but having a network of private companies, industry experts, and deep sector data all helps to connect the dots for people.
Steve Sakwa, Evercore ISI
Financial Institutions — REITs (No. 1)
What’s the best call you’ve ever made?
- Upgrading [American Campus Communities] at the bottom of the Covid crisis in March 2021.
- Upgrading [Welltower] near the bottom of the Covid crisis in spring 2021.
- Putting a sell on [Public Storage] around $275 several years ago and covering that call when the stock was down around $200.
What’s the worst call you’ve ever made?
Participating in the IPO of Affordable Residential Communities back in 2005. This company never lived up to the high expectations and didn’t perform well as a public REIT.
What’s the biggest challenge the sell-side research industry faces?
Outside of compression in commissions, I’d say training and retaining young talent. I’ve found that the turnover of associates and young analysts is higher today than five to ten years ago, so creating the next generation of great analysts is more difficult.
What’s the biggest challenge for the sector you cover?
A sharp rise in interest rates would be a positive for economic growth and perhaps job growth, but also could pressure REIT valuations if the ten-year Treasury surged beyond 2 percent in a short period of time. The other big challenge would be stagflation for the group, as higher rates without higher economic growth would squeeze REIT profits and probably put downward pressure on REIT multiples.
What does it mean to be an all-star analyst?
It’s a great honor to be recognized as an all-star analyst, but most importantly, it shows that we have a great team working together to help clients navigate the markets day-to-day and think through the issues impacting stocks. Being the No. 1 analyst is not a one-person job, and having a great support system is what it’s all about. Therefore I’m proud of the work that our team completed over the past year during the pandemic to help differentiate our research from the competition.
Jailendra Singh, Credit Suisse
Health Care — Healthcare Technology & Distribution
(No. 1)
What’s the best call you’ve ever made?
A majority of companies in the space I cover are health care disrupters, where the focus should be on identifying winners and having a long-term view. As a result, I think my best call is still to come. Having said that, our decision to downgrade our rating on Amwell from outperform to neutral in early 2021 has been one of the best stock calls thus far. AMWL shares were trading in the low $40s and at a valuation that reflected a significant year-over-year growth acceleration in 2021. However, based on some of the industry surveys and channel checks we did in late 2020 and early 2021 and other analysis, we came to the conclusion that 2021 guidance was likely to fall short of expectations and decided to move to neutral. Shares now trade below $10. While we like the company’s long-term vision and positioning, I think there are still some near-term uncertainties driven by the competitive landscape.
What’s the worst call you’ve ever made?
In early 2021, we launched coverage on SOC Telemed with an outperform rating, as we liked the company’s positioning as the market leader in the acute-care telemedicine market and valuations were very attractive. However, with Covid consistently impacting the company’s business, combined with some operational execution issues, shares have been under pressure this year.
What’s the biggest challenge the sell-side research industry faces?
The biggest challenge the sell-side research industry is facing today is parsing out the noise versus information that is truly valuable. There has never been so much data, resources, and opinions available to analysts — in addition to our institutional investor clients — and trying to pinpoint what is substance and what is irrelevant is often complicated. However, it is something sell-side analysts have to address in order to be differentiated in the industry, which continues to get more competitive.
What’s the biggest challenge for the sector you cover?
The majority of companies we cover are relatively young to the public markets. Our understanding of the business models of these companies, trust in the leadership teams, and the competitive landscape continue to evolve. Operationally, the biggest challenge for our sector is that the digital health industry — which now represents a significant part of the health care technology and distribution sector — continues to get very competitive. The increased market attractiveness post-pandemic has resulted in several well-established companies increasingly looking to compete in the space. The partnerships, M&A, and new products and services are a constant in our space, and there are no signs of the evolution slowing down.
What does it mean to be an all-star analyst?
Going from being an unranked analyst in 2019 to being an all-star analyst in 2021 is a humbling experience. Many hours and late nights go into being a sell-side analyst — it is a 24/7 job. Importantly, it just shows hard work does pay off.
Savita Subramanian, BofA Securities
Macro — ESG Research (No. 1)
Macro — Quantitative Research (No. 3)
Macro — Portfolio Strategy (Runner-up)
What’s the best call you’ve ever made?
Late last year, we upgraded energy to an overweight, and it was because of what we were seeing in our ESG work. We found that energy was a sector that was considered brown — it had been purged by all ESG-focused investors because it was a big emitter. But we noticed that energy companies had gotten the memo on the risks from an environmental perspective. In our ESG work, we found that energy companies were actually most aggressively setting carbon-neutral goals and tracking their progress toward those goals. It was an interesting transformation. These energy companies realized that their investor base was shrinking unless they addressed some of the risks facing their companies and facing their business models. It was a really interesting time to look at the energy sector, because the supply-demand landscape was changing dramatically because of economic paralysis during the Covid-19 pandemic and then the reopening. But on top of that, we were seeing that these companies were actually starting to focus on capital discipline; they were preserving their dividends at all costs. They were listening to what investors wanted from an environmental perspective and addressing these concerns by setting target dates. That was a really nerve-wracking call to me as a head of ESG, because energy is not normally associated with ESG.
What’s the worst call you’ve ever made?
I think the worst call that we’ve ever made was reading ESG as a separate discipline within the investment industry. I think this is not the right way we should have been thinking about it. I’m realizing that ESG research is not a new thing. It’s not some liberal agenda; it’s not a focus on morality. It’s really part of the mosaic of signals that we should all be using in every investment decision. I think in five years I won’t have a job as head of ESG, because ESG will just be part of everything. I don’t think there will be green bonds anymore. I think all bonds will be green.
What’s the biggest challenge the sell-side research industry faces?
Where do I begin? Information is so readily available that the hardest part of my job is editing our research and figuring out what’s most relevant across these massive quantities of data. In order to stay relevant as an analyst, our biggest job is to edit and to curate and to come up with the key messages behind this whole theory of inflation. During Covid-19, when we were all at home, folks were facing screen fatigue. Nobody wanted to read anymore, so part of the job has been figuring out the best way to give our calls to clients without making them work too hard. I think that that requires editing and curating and creating more visual — rather than written — representations of our themes.
What’s the biggest challenge for the sectors you cover?
I think the biggest challenge facing us today, as an investment discipline, is that ESG falls by the wayside. If we do see a pickup in inflation or a pickup in oil prices, that’s a challenge. Investors’ memories tend to be short, and if we’re in an environment where energy is the best-performing sector, the risk is everybody forgets everything we’ve learned over the last ten years about emissions and environmental concerns.
What does it mean to be an all-star analyst?
I’m really thankful to clients for recognizing our research. It’s really an honor. It’s very flattering, and, because of the caliber of our clients, I think any analyst would tell you that they get their best ideas from talking to supersmart clients. I see it as the culmination of a great career in sell-side research, which I love. I think this is potentially the best job I could have ever imagined. It’s never boring. There’s always something that I’m trying to figure out and scrambling to understand in real time. It’s intellectually rewarding, and you meet amazing, talented people.