Swinging the Ax: Which Analyst Wields the Big Stick on a Stock?

Editor's note: This piece is the last in a three-part series about the state of analyst research. The first installment, What a Research Analyst Is (And What an Analyst Is Not), appeared Monday. The second installment, They Work Hard for the Money -- Really, appeared Tuesday.

Who's the ax? That's important to know when you're following a particular stock or sector. The ax is the sell-side analyst who is generally regarded as the most influential -- the man or woman whose very pronouncements move stocks up and down. The ax, however, may not in fact be the best analyst. Some of the axes in the TheStreet.com's Analyst Ranking -- Equity 2000 survey did take top honors; many did not, as you can see in the table below.

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Identifying an ax is an imprecise science. Some stocks or sectors have different axes on different days or in different environments. All axes, however, share certain characteristics. They have an extraordinarily close relationship with the management of the companies they follow. They communicate with a large and influential investor base -- typically through the aggressive sales forces of their firms. And they have the guts to make controversial calls and then shamelessly promote those positions.

Richard Sherlund

There is little question, for example, that Rick Sherlund of Goldman Sachs (GS Quote) is the ax on Microsoft(MSFT Quote). He was the analyst on Microsoft's initial public offering in 1986, and Sherlund speaks with such authority on the software maker, that one could be forgiven for mistaking the company's comments for Sherlund's at times. Microsoft stock, already wobbling, swooned in April when Sherlund very publicly cut back his estimate of revenue for the company's third quarter, for example.

True axes take power with them when they change jobs. Daniel Niles was an ax on Intel(INTC Quote) when he was with Robertson Stephens. When he relocated to Lehman Brothers recently, he immediately boosted Intel's stock with a bullish call on the chip maker.

Mary Meeker

Axes aren't necessarily the best liked analysts or the best stock pickers. Amazon.com(AMZN Quote) ax Mary Meeker didn't rank first in TSC's survey of analysts. But were she to go negative on Amazon.com(AMZN Quote), a Morgan Stanley Dean Witter (MWD Quote) investment banking client, rest assured the stock would plummet.

Mark Edelstone

Of course, the ax can be perceived to be biased. Morgan Stanley's Mark Edelstone has been a relentless promoter of Rambus(RMBS Quote), which supplies technology to memory chipmakers and also is a Morgan client. Countless times in the last 18 months his supportive commentary has boosted shares of Rambus, while his downward revisions on earnings sometimes hurt it. But Edelstone's support paid off, as the company essentially delivered on his promises -- and the stock is up more than sixfold from its 52-week low.

So, no matter how bright the top-ranked analysts are and no matter how good their stock picks, the wise investor remembers to ask: Is this the ax?

Being An Ax Doesn't Always Mean Being The Best
Analyst	Firm	Category	Overall Rank
John Bensche	Lehman Brothers	Wireless Telecommunications Services	6 of 24
Henry Blodget	Merrill Lynch	Internet Software & Services	1 of 28
Amy Butte	Bear Stearns	Diversified Financial Services	12 of 28
Laura Conigliaro	Goldman Sachs	Computer Hardware	5 of 25
Mark Edelstone	Morgan Stanley Dean Witter	Semiconductors	1 of 27
Gregory Geiling	J.P. Morgan	Telecommunications Equipment	1 of 39
Jack Grubman	Salomon Smith Barney	Integrated Telecommunications Services	1 of 19
Ashok Kumar	U.S. Bancorp Piper Jaffray	Semiconductors	20 of 27
Steve McClellan	Merrill Lynch	IT Consulting & Services	7 of 21
Mary Meeker	Morgan Stanley Dean Witter	Internet Software & Services	3 of 28
Anne Meisner	Goldman Sachs	Systems Software	11 of 20
Steve Milunovich	Merrill Lynch	Computer Hardware	2 of 25
Dan Niles	Lehman Brothers*	Semiconductors	2 of 27
Rick Sherlund	Goldman Sachs	System Software	2 of 20
Dana Telsey	Bear Stearns	Apparel Retail	1 of 27

*At Robertson Stephens at time of ranking.