With the heat being turned up on equity analysts from big investment banks who holler “Buy!”every six seconds on Wall Street, we have a recommendation in the interest of settling the contentious issue of biased research reporting.

Loosen your ties, gang. Pound the dust off your Oxford (that’s a dictionary) and introduce a new word to your vocabulary. Yell it out to the masses.

“SELL!!!!!!!!!!!!!!!!!!!!”

A sell recommendation should work wonders. Your investment bank, Merrill Lynch or whoever, will promptly fire you (just ask Jerry Treppel, the Banc of America Securities analyst who has been on “administrative leave” since uttering Wall Street’s dirty four-letter word in a report on Canadian drugmaker Biovail).

Gang, you can do lunch with your ol’ pal Henry Blodget, Merrill’s one-time Internet analyst, whose dubious work is under scrutiny by New York State attorney-general Eliot Spitzer over conflicts of interest between analysts and investment banks.

Once the bullish analysts are disposed of, the Street will be a safer place for all concerned.

Unfortunately, the million-dollar-a-year analysts are too busy penning flowery research reports to listen to our sell recommendation.

Perhaps it’s too much to ask these promoters masquerading as analysts to wise up and deliver the straight goods, considering many are rewarded with handsome bonuses for helping their investment banks attract clients.

Therefore, until Spitzer and the Securities and Exchange Commission can clean up the mess on Wall Street and introduce reforms to at least curb blatant conflicts of interest, investors must refrain from buying stocks based solely on analyst recommendations.

What investors need to know is that analysts generally don’t give a damn about the retail investor. Their loyalty, understandably, is to the ones who sign their cheques.

The comedy of analyst errors has not been lost on fund managers and other institutional investors, who for years have been using analyst research reports as scrap paper.

With sell calls making up only one per cent of recommendations in 2000 at the height of the bull market and buy recommendations comprising 75 per cent of ratings, based on First Call’s research of 28,000 recommendations, one needs to hire an analyst to figure out what the analysts are really saying.

Buy can be a sign the analyst is securing his own employment and prospects for incentives, hold usually means the analyst doesn’t have the guts to issue a sell rating, and sell means the analyst is too honest for his own good.

By the time the analysts all climb on board with buy recommendations on a stock, it’s usually overpriced and time to sell. Currently, two of the Canadian companies that analysts most covet are companies in the high-risk telecom space – Telus (T-TSX) with four buy recommendations and BCE Inc. (BCE-TSX) with five buy recommendations.

All hell has been breaking loose since Treppel, a high-profile biotech analyst, not only said sell but also told reporters that Biovail’s controversial acquisition of a patent on the hypertension drug Tiazac “looked like fraud.”

Now Treppel is not only being investigated by his own firm, Banc of America, but also Biovail.

Some media also are guilty of putting too much stock in analyst calls. Investor’s Digest, a Canadian publication, continues to print extensive surveys of analyst ratings of Canadian stocks, including top-10 lists of analysts’ most favoured and least favoured stocks, as if they were the gospel.

A look back to the most and least favoured stocks in Investor’s Digest two years ago is all you need to know about how ludicrous a consensus of recommendations can be.

If you had bought Investor’s Digest favourite stocks two years ago, Inco, Petro-Canada, Domtar, Alcan Aluminum and Canadian Natural Resources, all of which had at least five buy or buy/hold recommendations and no hold, hold/sell or sell recommendations, you’d be up a modest 20 per cent today.

However, if you’d have played contrarian to the analysts then and bought the mangy dogs that carried rare sell signals and no buy or buy/hold ratings – Corel Corp., Mullen Transportation, Echo Bay Mines, Andres Wines, Moore Corp and Petrobank Energy – you’d be up about 85 per cent!

Of the aforementioned stocks saddled with at least one sell rating and covered by at least three analysts, four of them are big winners today. Moore Corp. has come alive with a vengeance, rising 440 per cent from the analyst graveyard.

As long as investors place their bets on nonsensical analyst calls, the analysts will continue to operate on a loose rein. And it will be business as usual – with Wall Street holding the trump card.

* STREET TALK: “I would rather make a living playing a piano in a whorehouse.” – Charlie Munger, right-hand man of Warren Buffett and a partner with Berkshire Hathaway, when asked whether he would accept a position lobbying in favour of executive stock options.

* SAGE ADVICE: “The crowd has never thirsted for the truth. It turns aside from evidence that is not to its taste, preferring to glorify and to follow error, if the way of error appears attractive enough, and seduces them.” – Gustave Lebon, a 19th-century observer of crowd psychology.

HOT ALBERTA STOCK: Biomira



BRA-TSX $5.50 Up $2 (+57.1%) on 1,012,200 shares (for week ending May 17). While some Alberta biotech stocks have been under the weather in recent months (see Oncolytics – ONC-TSX, see Synsorb – SYB-TSX), Edmonton-based Biomira has been stealing the show. The recent surge came after the developer of cancer treatments said it will outline its plan to finish Phase 3 (final phase) testing of its breast-cancer vaccine at a May 22 annual meeting.

COLD ALBERTA STOCK: Flock Resources



FLR-TSX Venture 90 Cents. Down 35 cents (-28%) on 52,500 shares (for week ending May 17). A couple of years ago, gold penny stocks were reinventing themselves as dot-coms, a move most are regretting now that the gold train has left the station. Now, some dot-coms are reinventing themselves as resource companies. Flock is the former tech high flier Web Shepherd and now the Calgary-based company, headed by an oilpatch management team, plans to rename itself again, Endev Energy. Gosh, you really do need a program to tell the players.