Brent Johnstone is co-president of New York City-based Bulldogresearch.com, a Web site that ranks Wall Street research analysts by the accuracy of their earnings and stock performance forecasts.
It is the first online source for comparing analysts, providing more in-depth data than the annual studies conducted by Institutional Investor and the Wall Street Journal, which rely on interviews with third parties and rank analysts according to their performance in industries, not particular stocks.
Johnstone recently sat down for an interview about his Web site.
Q–What sort of analysts do you track?
A–We track more than 3,000 research analysts from more than 350 research firms. Analysts are people who evaluate stocks and industries to help investors make better-informed investment decisions. They typically investigate companies by interviewing their management teams, suppliers, customers and competitors in order to produce detailed forecasts based on their findings. We rank them based on accuracy, consistency and performance.
Q–How do you judge them?
We track every analyst, every stock, every industry, every day. We have a model that measures each analyst’s earnings forecasts and stock recommendations and compares them against actual results. We do this in the following way.
For earnings estimates, we track the estimates of analysts over the last quarter, four quarters, eight quarters and 12 quarters, as well as over the last fiscal year, two years and three years. For each period, we list the top five analysts. That way, investors can get an idea which analysts provided the best forecasts consistently over three years, or alternatively, find out which analyst has been hot over the last quarter or two.
For stock recommendations, we track each analyst according to industry sector. Here, we rank the top five analysts according to the size of the return on stocks that they’ve recommended as a “buy.”
Q–Analysts are constantly changing their ratings on stocks. How do you keep up?
A–We track their entire portfolio. When an analyst has a portfolio of buy-recommended stocks, we track the performance of that portfolio over time. When the analyst adds stocks to that list, or takes them away, we adjust our tracking of the portfolio so that it’s constantly being updated, every day. We track by industry because when someone is making a buy recommendation on a given stock, investors want to know: Has this analyst’s past track record demonstrated that he’s been really good with stock picks?
Q–What sort of audience are you targeting?
A–There are three different audiences. First, you’ve got the media, which has been using the site as a tool to search for analysts, and give them credit. It’s a good story right now, especially with the market’s volatility. You can’t just pick any analysts and expect to do well. You really have to follow the analysts that have a good track record on a given stock, who have really been following the companies. Second, the professional investors and bankers are using the site. Brokers can use it to validate the research that they’re talking about to their clients.
Finally, individual investors finally have the chance to steer clear of the chatrooms and listen to the top analysts. They see analysts come on CNBC and CNN all day long, and they’re finding that there’s too much noise out there. We want to boil it down to the basics.
Q–What do your viewers prefer: earnings estimate rankings or stock performance rankings?
A–It depends on the person. I think the average retail investor likes to look at the stock picks. But the interesting thing is that earnings are becoming a bigger part of investing these days. With Internet stocks becoming all the rage over the last couple of years, earnings sort of fell out of favor. People weren’t looking at earnings; they were looking at revenue growth.
Traditional measures like price-earnings ratios were getting so out of whack that you couldn’t use them as a valuation benchmark anymore. But now earnings are back in fashion. I think we’re going to see a shift. People are looking to find who’s been vigilant in tracking the fundamentals of a given stock.
Q–Visiting the site, I noticed that some analysts weren’t named. For example, the analyst who had the best earnings estimates for Amazon over the last eight quarters was labeled “unattributed.” Why is that?
A–There are some research firms that don’t allow us to provide the analysts’ names. Bulldogresearch.com tracks all research analysts that appear in the so-called IBES database, which comprises analysts from more than 350 research firms. Right now, we have 95 percent of the firms participating. We’re still trying to get the remaining firms to join in.
Q–You also carry the latest upgrades and downgrades by analysts of particular stocks. How?
A–We look at the trends of award-winning analysts. We take all of the upgrades and downgrades of the stock, and the revisions upward and downward of earnings estimates, and then we filter it, and we take a look at who has been an award-winning analyst and identify only those upgrades and downgrades made by those good analysts. It’s one more step of filtration.
Q–Do you offer any written analysis?
A–We’re developing a new product called Bones, based on the research of one of our advisory board members, Charles Lee, a professor of accounting and finance at Cornell University.
We’ve incorporating some of his research that finds that when award-winning analysts make strong revisions, either up or down in their earnings estimates, there are correlations with movements in stock prices. When analysts are making bold moves in their earnings estimates revisions, this is often linked to dramatic stock price movement. We want to highlight this.
We’re in the process of back-testing our award-winning analysts against these kinds of patterns. We hope to introduce Bones soon.
