Local Brokerages Plan to Spotlight Southland Firms
Southland brokerages have long been criticized for providing too little research coverage of area companies. That may be changing--in a big way.
Seidler Amdec Securities, a Los Angeles firm that mainly caters to large institutional investors, has brought in a new research chief with ambitious goals for the company’s stock coverage. Some Seidler competitors also say they’re plotting significant increases in their research analyst staffs, to spotlight more area companies.
Whether the firms quickly follow through on their plans remains to be seen, given the once again lousy environment for stocks. But many area brokerages insist that, long-term, stronger research coverage is key to attracting more investors and more corporate finance business.
No other firm appears to have as substantial a research boost planned as Seidler. The brokerage’s 61-year-old chairman, Roland Seidler Jr., says he wants to make a new commitment to research as a means of bolstering the firm’s investment banking activities--the underwriting of stock and bond offerings, for example.
Seidler recently hired Ramon Pecuch to replace Robert Hanisee as the brokerage’s research chief. Hanisee, long a fixture at Seidler, left to join Trust Co. of the West in Los Angeles as a money manager.
Pecuch, 44, had been research chief at brokerage Roulston & Co. in Cleveland until he quit a year ago to devote himself full time to running a tool and die shop he owned in that Midwest city. After meeting Seidler through a mutual friend, Pecuch says he became intrigued with Seidler’s vision for his firm and decided to get back into the business.
Pecuch’s three- to five-year plan is to add seven stock analysts to the five Seidler now has. With 12 analysts Seidler would match Bateman Eichler, Hill Richards, which now leads in the number of analysts based in Los Angeles.
Seidler’s first big move: It recently hired entertainment industry analyst Jeffrey Logsdon away from L.A. competitor Crowell, Weedon & Co. Meanwhile, major shifts in analyst teams also are afoot among other Southland brokerages:
* David Holt, Wedbush Morgan Securities’ research chief, says he’s looking to hire three analysts to complement his current team of three (one of whom, drug industry analyst David Saks, is based in New York). Holt wants two of the new hires to be generalists, “to concentrate on emerging growth companies on the West Coast.”
* Newport Beach-based Cruttenden & Co., which has a two-man research team focusing mostly on small Southland companies, recently hired a part-time analyst and now wants to add coverage of the entertainment and defense industries, says research chief Mark Matheson.
* Norman Mains, Bateman’s research director, denies persistent rumors that Bateman parent Kemper Corp. is planning to cut the L.A.-based research staff to reduce expenses. He says Bateman will at least retain its 12 analysts and says he’d like to beef up the firm’s coverage of technology and utilities.
The rumors swirling around Bateman point up the conflict within the brokerage industry over the expansion of research efforts now: As the stock market continues to slump, many firms find it difficult to justify hiring more analysts to tout stocks that may find few buyers anyway.
Analysts aren’t cheap. Salaries for such professionals in the Southland start in the $50,000 to $75,000 range. And finding analysts who are good stock-pickers--and who can mesh well with a firm’s brokers--is always a huge challenge. For example, Wedbush’s Holt admits his firm didn’t see eye-to-eye with energy analyst Ken Funsten, who recently left “by mutual agreement.”
Even so, many L.A. regional brokerages agree there’s a strong need for more local analysts tracking Southland companies. Most major Wall Street brokerages have no analysts based here. That leaves the turf wide open for the regionals, if they’re willing to spend the money.
“There’s a vacuum here,” says Seidler’s Pecuch. Even in the case of analysts who are based here, some brokerage executives admit that too little attention is paid by those analysts to local firms. “There’s been a tendency never to follow the guys in your own back yard,” one brokerage officer laments.
Analyst coverage of a stock is important for a number of reasons. While an investor can learn a lot from a firm’s annual report, a trained analyst can succinctly detail the positives and negatives about the company in a manner that the company would never provide. An analyst also can provide insight into the company’s performance versus its industry peers.
The goal is to get a consistently objective opinion from an analyst regarding a company’s true potential. In practice, total objectivity is rare. It’s easy to advise buying a stock but much tougher to say sell. After all, one reason a brokerage employs analysts is to lure companies to do their financing with the brokerage. An analyst who locates and recommends a promising firm’s stock obviously is making the company’s managers very happy.
Still, even with objectivity a constant concern, analysts serve a useful purpose for investors large and small. And from a young company’s point of view, research coverage is invaluable: A good analyst can bring a stock more publicity than a truckload of company press releases.
Pecuch sees a big universe of Southland (and West Coast) firms that deserve research coverage. The firm follows about 60 companies now, but a staff of 12 analysts would mean coverage of about 300 firms, Pecuch says.
He wants Seidler to concentrate on three broad fields: Consumer businesses such as retailing and entertainment; West Coast growth-oriented businesses such as health care and drugs, and businesses in specialty manufacturing and infrastructure support.
His goal is to ferret out the companies that now are under-followed, rather than hiring analysts to follow big national companies that already have dozens of Wall Street analysts tracking them. “We don’t want to be a me-too player,” Pecuch says. “You have to find your niche and be the best you can be.” If Seidler can pull it off, many Southland companies may be very grateful in the long run.
SOUTHLAND STOCK ANALYSTS
Here are the major regional brokerages that have analysts based here, tracking area companies.
No. of Brokerage analysts Specialties Bateman Eichler 12 Retail, real estate, health airlines, defense Seidler Amdec 5 Retail, engineering, defense, entertainment Crowell Weedon 5 Banks/S&Ls;, energy, utilities, real estate L.H. Friend 5 Health care, technology, energy, entertainment Wedbush Morgan 3 Drugs, technology Cruttenden 2 Health care, banks/S&Ls;, technology
