Markets
Who Picks the Best Stocks
We help you sift through the jumble of voices telling you what to buy and what to sell.
By David Landis, Contributing Editor
From Kiplinger's Personal Finance magazine, April 2006
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Weiss Ratings has long been a familiar name to life-insurance buyers, who rely on the firm's safety ratings. Weiss added stock ratings in 2001 and now offers buy, sell and hold opinions on 6,000 stocks, as well as a letter-grade safety rating (A through F). The Weiss system is quantitative, weighing 60 factors, including a company's financial stability, says chief executive Bruce Fador. Weiss provides the ratings to customers of Wall Street brokerages, including Merrill Lynch, as part of the 2003 settlement, but it also offers them to consumers online at www.weissratings.com for $559 a year or $15 per report.
Among its recent recommendations is Cisco Systems (CSCO), the networking colossus whose shares have been stuck in neutral for years. Weiss says Cisco's recent purchase of TV set-top box maker Scientific-Atlanta demonstrates the company's resolve to become a force in linking television and computer technology, a strategy that "could reap huge rewards." Cisco trades at $20. Weiss is also high on software giant Oracle (ORCL). Weiss contends that the stock, at $13, is unreasonably depressed by concerns that Oracle will have a hard time integrating Siebel Systems, which it recently acquired.
Wachovia Securities joins Raymond James as the second representative of traditional stock analysis among the six top firms. The Richmond, Va.-based brokerage unit of banking giant Wachovia employs 40 senior analysts and tracks 950 stocks. The research is distributed through 719 retail brokerage offices and to institutional clients.
Recent additions to Wachovia's Focus List, a collection of its best ideas, include Illinois Tool Works (ITW), a manufacturer of a myriad of industrial products. Analyst Julie LaPunzina likes ITW's strong balance sheet -- "almost too good," she says -- and the potential for some of its businesses to prosper as the economy enters the late stages of the current expansion. She values the stock at $105, well over its current price of $85. Also on the Focus List is Centene (CNC), which operates managed-care health plans in seven states. Analyst Matt Perry says that Centene's P/E is about 20% below its average P/E in recent years and that the stock, recently $26, is worth as much as $31.
Channel Trend is yet another small firm with a potent quantitative model. Founded in 1982, the Dallas firm covers 9,000 U.S. and foreign stocks with a staff of just six. Channel Trend's methodology is a blend of two models, one that measures a stock's value and another that looks at price momentum. Although it may seem that quantitative research firms all use the same model, each has its own approach to choosing how to measure such things as value and price momentum and deciding how to weight the factors. "We all take different approaches, but they all are based on a systematic and disciplined process," says Bill Keller, one of Channel Trend's four principals. Investors who are used to seeing 12-month target prices should take note of Channel Trend's relatively short-term outlook. It projects prices three months out. The firm's research is available to customers of Banc of America, Fidelity and Merrill Lynch.
Stocks recently upgraded to Channel Trend's highest rating include Alexander & Baldwin (ALEX), a Honolulu-based conglomerate with interests in ocean tankers, real estate and food products. The company has been the beneficiary of strong economic growth in China and Hawaii. Channel Trend pegs the stock's fair value at $57, compared with a recent price of $48. Another top-rated pick is Lamar Advertising (LAMR), which puts advertising on billboards, bus shelters and other outdoor venues. Although the company's results have been inconsistent, Channel Trend gives the stock good marks because its price trend is stronger than most of the stocks the firm follows and better than all of the advertising stocks it tracks. Channel pegs the stock's fair value at $54. It recently fetched $47.