Wall Street Thinkers Are Valuable and Rare

Voters in our Analyst Ranking survey praise the analysts who make them think before they act.
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It's a race against time. Investors are always searching for the insights that will put them one step ahead of the competition. But they have a lot of companies to track and a lot of data to review. With 100-hour workweeks, who has time to think?

On hurried Wall Street, "thinkers" are in great demand -- the analysts who look at the big picture rather than disseminate data for the sake of disseminating data or supply lists of stock picks with little backup. Investors often want to hear the thought process behind the recommendations. A creative thinker can get investors to look at their stocks in a different way -- and help them to draw their own conclusions.

In our recent survey,

Analyst Rankings -- Equity 2000

, a handful of analysts received the highest marks on "makes me think." Voters at money management firms said these analysts "provide information and insights that challenge current opinion."

By and large, these analysts are committed to producing original research on a regular basis. And whether they opt for 200-page reports or two-minute voice mails, they know how to get clients' attention. After all, what good is a breakthrough idea if nobody knows about it? (See our

related story on how investors value a provocative thinker.)

* Now at Credit Suisse First Boston ** Now at Morgan Stanley Dean Witter

Take

Diane Merdian, bank analyst at

Morgan Stanley Dean Witter

(she left

Banc of America

in March). Merdian says she "made a promise" when she returned to the sell side in 1994, to produce one thought piece a month -- "to think out loud and be original," she explains. Merdian says she tries to focus on questions no one else is asking.

A report she published in November, for example, looked at credit cycles, comparing cost structures among companies. "It was mind-boggling how much advantage the low-cost producer had," she says. "No one had sat down to do the math."

Weston Hicks, property and casualty insurance analyst at

J.P. Morgan

, is particularly proud of the soup-to-nuts report he produced on

Aetna

(AET)

in the first quarter. "When I picked up coverage, it was universally despised on the sell side," he recalls.

An analysis of the changing dynamics of the HMO industry alerted Hicks that the company had passed the worst. As he predicted, the stock began to rise, jumping from 51 to 66 in a down market. Even now, he relates, "People are still saying, 'What's going on here?'" Several investors in our survey lauded Hicks for his "great research."

William Ryan of

Salomon Smith Barney

prides himself on "digging in to find out what's going on behind the numbers." A consumer finance analyst, Ryan shops for credit, tries to buy mobile homes and applies for home equity or used car loans at various bank branches.

Ryan "knows how to perform true research. He digs for info, triangulates data points, makes 'calls' early," one voter wrote. Ryan gets additional points for objectivity: "Bill is not a puppet for SSB's investment bankers," says a fan, "an unseen quality in today's market!" And Ryan's efforts have definitely paid off: In April 1999, he published a report extremely critical of the manufactured housing industry right before it blew up --

Conseco

(CNC) - Get Report

, for example, an insurer of mobile homes, was around 30 in April 1999; a year later it was trading in the single digits.

To

Dan Lemaitre, a health care equipment analyst for

Merrill Lynch

, the hallmark of a successful thinker is someone who is "impressionable." In his work, he relies on a liberal application of inferential thinking to come to conclusions, and then he "connects the dots" for his clients.

When

Baxter International

(BAX) - Get Report

CEO Harry Kremer came out with unusually optimistic projections at the end of March, Lemaitre recalls being intrigued. "I asked myself, 'What does Harry know that the rest of us don't?'"

Lemaitre ultimately came up with an answer: Based on his investigation, he learned that Baxter was releasing additional recombinant Factor VIII, a protein used in the treatment of hemophilia, and concluded that there was sufficient demand to absorb it. This new supply would drive the growth alluded to by Kremer. Lemaitre continued to recommend the stock with conviction. Though Lemaitre admits that he "may be dead wrong," he insists that this is the sort of work Wall Streeters should be doing.

Though some of our standout thinkers concentrate on keeping their thoughts brief,

Alice Schroeder,

PaineWebber's

property and casualty insurance analyst, doesn't shy from the blockbuster report. In the past six months, she has published two.

In May, she put out a 300-page report on

American International Group

(AIG) - Get Report

, whose international growth prospects had seemed an impenetrable black box. "When we started, the conventional wisdom was 'don't bother -- they won't tell you anything,'" recalls Schroeder. "But I thought if we dug at it long enough, we could put together a good picture."

Known as "an analyst's analyst," according to voters, Schroeder has won a reputation for providing "great information," which, says a portfolio manager, combined with her "can-do attitude makes her extremely tough on management teams to give a creditable answer."

On the other hand,

Anne Malone, a health care equipment analyst at Salomon Smith Barney, considers long think pieces to be a waste of time. "Clients want three bullets, not 30 pages," she says. "Always write your bullets and introductory paragraphs yourself ... no one reads the rest." Before Malone leaves a voice mail, she condenses it to two minutes. One voter singles out Malone's "great quick email blurbs" for special mention.

No matter which strategy analysts ultimately choose to add value to their research, providing fresh concepts in reader-friendly fashion is time consuming. MSDW's Merdian says she tries hard to save clients' time. "I'll rewrite a report 15 times if necessary, until it's easy to read," she says. Admits SSB's Malone, "I don't sleep a lot."

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