Whether they're too conflicted, too optimistic, too caught up in protecting their jobs, or just too wrong, professional analysts don't inspire as much awe as they once did. But that doesn't mean they're all bad.
True, it's no secret that we Fools have a voracious appetite for exposing Wall Street's cheating ways, slick-talking gibberish, and repugnant odor. We've become completely desensitized to the upgrades and downgrades that professional analysts assign to stocks at a mind-numbing pace. It's even become a rite of passage for sharp investors to realize that professional analysts, as a whole, provide no long-term investment value, and that it might be smarter to ignore Wall Street altogether.
They're not all bad
In fairness, many analysts are savvy stock pickers. The Wall Street Journal celebrates the best analysts and the best calls across industries annually. Even so, there's simply not enough transparency in the industry to know just who the best and worst analysts are. That's bad for the good analysts; they're unwittingly protecting the sheep.
Enter Motley Fool CAPS, our community-intelligence database, which tracks the "outperform" and "underperform" ratings assigned to stocks by individual investors and pros alike. In turn, every stock and every investor earns a rating. That means we can finally answer the age-old question: Which analysts are better stock pickers than my grandmother?
Bet with the best
One savvy pro ranked high atop the CAPS charts is Morgan Joseph, a full-service brokerage headquartered in New York City. As of this writing, Morgan Joseph is ranked 194th overall in CAPS (and 10th among professional analysts), having crushed the market since last September with 63% accuracy.
A ranking of 194 won't get you into Wimbledon on the professional tennis tour, but with nearly 21,000 participants in CAPS, Joseph's score puts it ahead of 99% of other investment portfolios. Pretty impressive.
The sweetest calls of 'em all
The firm's recent big winners include Hill International
If you're looking to piggyback on some newer picks, however, know that the firm also rewarded outperform ratings to Jacobs Engineering Group
Street wisdom worth using
By examining Morgan Joseph's portfolio in CAPS, we should be able to learn some key investment lessons from one of Wall Street's best.
For example, you might have noticed that many of Joseph's recommendations are relatively unfamiliar names in seriously mundane industries. Most of the firm's research coverage is limited to snoozer-ish sectors such as cable and broadcasting, diversified industrials, and restaurants. The extent of Joseph's "techie" exposure lies in wireless communications and a sprinkle of biotech. No stun guns, fuel cells, or robo-soldiers for this firm.
Even more importantly, many of the firm's selections have unusual circumstances surrounding them: a corporate restructuring, a recent merger, a new strategy that's being implemented, or even pending litigations. That's no accident.
A very special style
According to the company's website, Morgan Joseph's analysts "distinguish themselves by zeroing in on quality companies with growth prospects or which present special situations. These companies often lack a research following."
Some of Joseph's picks are so obscure, in fact, that several of them are traded over the counter, or have no CAPS rating at all.
This gives the firm an advantage, because boring stocks undergoing confusing changes tend to fly under Wall Street's radar. That often leaves them significantly undervalued.
Morgan Joseph's search for special situations is eerily similar to that of our newly minted small-cap service, Hidden Gems Pay Dirt. Created as a supplement to Motley Fool Hidden Gems, Pay Dirt also searches for ugly, beaten-down, unappreciated turnaround situations that Mr. Market tends to sell at discounted prices.
Judging from Morgan Joseph's focus on unique bargain opportunities, impressive accuracy, and All-Star performance in CAPS, this is at least one Wall Street firm that might be worth watching.
Past performance does not guarantee future results
Of course, the caveat here is that we've only been tracking Wall Street picks for a few months now. While we can't yet call the data predictive, it's at least interesting to examine.
If you'd like to take a look at the rest of Wall Street's best and worst analysts and their stock recommendations, click here to join the CAPS community absolutely free. You can also get all kinds of opinions on the stocks you're looking to buy, sell, or hold.
And hey, you might even find yourself surpassing some of Wall Street's biggest, best, and brightest in no time.
The financial community has been opaque for too long. CAPS can change all that.