Get to Know a Guru

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." In our recurring column, "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all. And in "Get to Know a Guru," we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: Kaufman Bros.

Profiles in punditry
Communications systems specialist Avaya (NYSE:AV) got hit with a downgrade Thursday, courtesy of investment bank Kaufman Bros. The reasons for the downgrade are pretty clear: The company has received an $8.2 billion buyout offer from private equity firms Silver Lake Partners and TPG Capital, and barring a bidding war, that makes it unlikely the stock will be around much longer, much less go up in price. But knowing the reason for the downgrade still leaves one question unanswered: Just who is Kaufman Bros., anyway?

If you're wondering just who the heck Kaufman is, and what it knows about telecom buyouts, well, you're not alone. This is the first time I've heard of Kaufman myself. Fortunately, the purpose of this recurring column is to dig into the history and records of these kinds of lesser-known analysts (as opposed to the JPMorgans and Goldman Sachses of the world). So without further ado, let's get to know this guru.

Who is Kaufman Bros.?
Fortunately, on Motley Fool CAPS, we track this firm and know the answer. Here's what CAPS has to say about Kaufman: "Kaufman Bros. is a research-based, full-service investment bank, securities trading firm and brokerage operation. The company generally focuses its operations on the communications, media and technology sectors. The Equity Research division provides coverage in the following sectors: cable, media and satellite, communications services and technology, communications software, computer systems, digital media software, distribution and logistics, enterprise communications equipment, enterprise software and network security, Internet and digital media, medical technology and life sciences, national and homeland security technology."

So that's good news right away for Avaya investors -- Kaufman actually focuses on similar communications firms. This suggests better-than-average knowledge of the players in this industry, and of the likelihood (or lack thereof) that someone will try to up Silver Lake's and TPG Capital's bid. Also good news: In clicking around the firm's website, we find that although Kaufman is a relatively young firm (founded 12 years ago by -- surprise! -- two brothers named Kaufman), and while several of its analysts have only limited work experience, the analysts covering the communications industry have all been in the business at least a decade apiece.

Are these guys any good?
So much for the firm's biography -- we really want to know about its resume. When Kaufman speaks, should investors listen?

As a matter of fact, yes. While not quite good enough to make our "Wall Street's Best" list, Kaufman boasts a combined CAPS rating of 93.70, putting it well within the ranks of CAPS All-Stars. Since we began tracking the firm, it has picked such winners as:

Admittedly, on the downside, the firm has also made blunders like:

Foolish takeaway
Although this is just a representative sampling of Kaufman's picks, the general pattern reflected above holds true throughout the firm's record. Kaufman does pretty well when sticking close to the communications industry, but less well when venturing into the realm of, for example, consumer electronics retailers.

Long story short: I wouldn't necessarily recommend listening to Kaufman the next time it tells you what to do with your Circuit City shares. But when Kaufman talks telecom tech, I'd lend these guys an ear.

Who else knows Avaya?
Closing thought: Judging from its record on CAPS, Kaufman is one of the good analysts. But it's far from the best expert on Avaya. Luckily, at CAPS, you're always just one click away from knowing who's got the No. 1 record on any given stock. To find out who best "gets" Avaya, click here.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked No. 489 out of nearly 30,000 rated investors. JPMorgan Chase is an Income Investor pick. The Motley Fool has a disclosure policy.