Last week,

this column explored the conundrum of trying to interpret analyst recommendations.

Research analysts at investment banks and brokerage firms rarely take a chance and tell investors to actually sell a stock. Instead, they traffic in euphemisms like underperform and reduce.

"It may be easier to figure out what an analyst is not saying, as opposed to what he or she is saying," writes reader

Mark Nixon

. "Sometimes the omissions can be more telling than the actual words."

Indeed, these carefully worded ratings -- developed to avoid irritating valuable investment banking clients -- must be translated by investors to be used at all.

And last week's basic explanation of these ratings only raised more questions.


Jeff Gardiner

asks, "Can you tell me why an analyst would start new coverage in a company at a hold rating?"

It's rare, but you will occasionally see an analyst initiate coverage of a stock with a hold, which in analyst parlance is usually the most negative recommendation you will see. Since they will never say sell, analysts will use a hold rating to send a negative message about a company.

With a company that's just gone public, it's understood that the analysts at the investment banks who underwrote the offering will follow that company.

"Analysts are expected to cover that stock," says Randall Roth, an analyst at Greenwich, Conn.-based

Renaissance Capital

, which runs the


IPO Plus Aftermarket fund. "Coverage is going to keep the stock in the mind's eye of investors."

The analysts at the underwriters have to wait about a month for the quiet period to come to an end before initiating coverage. (Quiet periods are imposed by securities regulations to prohibit interested parties from hyping a new stock during the offering period.)

In these cases, you will seldom see an analyst start a company with a hold rating, illustrating one of the implicit conflicts with Wall Street research. An analyst isn't going to slam a stock with a hold recommendation on a company that his or her employer just took public.

In this scenario, an analyst might use a hold if the stock has run up so much that it has hit its peak valuation. A hold wouldn't necessarily mean sell, but it could mean the stock is too expensive to buy.

However, you can find other instances when a hold recommendation is more likely to happen.

An analyst might be more apt to slap a hold on a new stock if that company doesn't have an underwriting relationship with that analyst's firm.

Also, an analyst may have switched jobs and will initiate coverage on an entire group of stocks at one time. In that situation you might see a hold rating. Or the stock could be a core name that an analyst must cover, despite that analyst's less-than-favorable opinion.

Of the 15 analysts already covering the new

AT&T Wireless


tracking stock,

CIBC Oppenheimer

did start the stock at a hold, according to

First Call/Thomson Financial

. The other 14 ratings are eight strong buys and six buys.

Renaissance's Roth believes you will see more holds come from the smaller research boutiques, like

Punk Ziegel

-- a firm known for its biotech research.

"Those firms are more forthcoming in their analysis."

That remark raises another issue: How do investors know which analysts to listen to?

"How do I find out which analysts the institutions follow?" asks reader

Doug Cochrane


Right now, the quickest way to uncover which analysts carry the greatest weight with institutions is by looking at

Institutional Investor's

long-running poll.


magazine surveys investment management professionals on their favorite Wall Street analysts and publishes the results in its All-America Research Team, which comes out every fall.

The list includes many oft-quoted names, including Internet analysts Mary Meeker and Henry Blodget.


Wall Street Journal

every summer publishes its own, more quantitative annual analyst ranking, which grades analysts on the accuracy of their stock picks and earnings forecasts.

is coming out with its own survey in June. This survey aims to become the industry standard among analyst surveys. Like


it will include a voter poll of institutional investors. But it will combine those results with a quantitative assessment of the analysts' stock-picking prowess.

Certainly, the analysts who get the most press attention obviously carry some influence.

"You'll find the best analyst isn't always the most hyped. You see outrageous predictions just to get attention," says Roth.

The more frequent complaint about analysts, however, is that they aren't willing to deviate from the herd and make a gutsy, forward-looking prediction. "There's a huge emphasis placed on making sure you aren't too far away from the consensus," Roth says.


Martin Wessler


"If you watch a specific high-profile stock long enough, you will see how the analyst industry runs like lemmings from one story to the next."

Good luck finding a dissenting opinion.

Learning the Lingo


Steve Horwitz

thinks even more jargon needs explaining.

"You might have parenthetically explained what a sell-side vs. a buy-side analyst is," Horwitz writes.

The sell side is Wall Street. The investment banks and brokerages are in the business of selling products, whether they're stocks, bonds or more esoteric securities. The buy side is the money management industry. Investment management professionals are making investment decisions and buying securities, either for funds or private accounts.

In this day and age, you are probably using both.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.