“Never bet against the American couch potato,” says veteran analyst Benjamin Swinburne of Morgan Stanley.
As screens have proliferated and individuals have ramped up their media consumption, institutional investors have been right there along with them.
Even pre-pandemic, buy-side demand for the best content to make informed investment decisions was accelerating — and investors have increasingly turned to an elite group of equity analysts to provide it to them. Although the core tenets of integrity, humility, and relationship-building remain, the scaffolding surrounding them has evolved rapidly, thanks in part to those screens.
“The thing that has changed is the pace at which we deliver those insights,” says BofA Securities analyst Julien Dumoulin-Smith. “It is no longer on a weekly or monthly basis. It is on a daily basis, and what has accelerated in the last couple years is that we no longer need to bounce around the country in person. We bounce around the country through the course of a single day, through the use of various platforms to jump on video calls.”
Swinburne and Dumoulin-Smith, along with three other analysts, are the newest class of inductees to the All-America Research Team Hall of Fame. They join the elite group of analysts who have earned a No. 1 ranking ten times or more since Institutional Investor introduced the survey in 1972.
In the 50th year of the AART, these veteran stars look back on their own careers and share what they’ve learned on the road to qualifying for the Hall of Fame.
Greg Badishkanian, Wolfe Research
Consumer — Leisure (No. 1)
Consumer — Food Retailers (Runner-up)
Consumer — Restaurants (Runner-up)
What’s the best call you’ve ever made?
I made a positive call on the leisure vehicle names — Polaris, boats, RVs — in April 2020, shortly after the Covid shutdown started. During the time of empty grocery store shelves, I assumed, along with a vast majority of investors, that with the economic uncertainty, very few consumers would be buying a big-ticket item like an ATV, RV, or boat. However, after surveying a number of dealers in early and mid-April, it became apparent that trends had picked up in a meaningful way. The feedback I received was that consumers were very willing to spend money on these types of items so they could vacation near home and in the outdoors with family and friends.
What’s the worst call you’ve ever made?
I downgraded Weight Watchers stock to a sell rating in the early 2000s, when the low-carb diet trend was at its peak. While the data points continued to suggest Weight Watchers’ business fundamentals were weak, investors were already incorporating this and the stock actually began going up on slightly less negative results. So a big lesson I learned fairly early on in my career was to incorporate investor expectations — and not just consensus sell-side estimates — into my stock calls.
How has your job changed since you started out?
Investors, and everyone for that matter, are inundated with the mass amount of information that’s available. So an important part of the job is distilling all the data into a very concise written product.
What one thing should clients know about your area of coverage?
My team now covers all of consumer versus just a single sector — this mirrors the buy side and also gives us a differentiated perspective into each of our covered sectors. We also try to speak regularly with the most successful and brightest private company leaders within each sector, which provides great insight into their respective industries.
What does it mean to be an all-star analyst?
While it is always nice to achieve professional milestones, in such a competitive industry you’re only as good as your last stock call. And the only thing I can be sure of is that whatever standard processes we are utilizing today will look materially different five years from now.
Julien Dumoulin-Smith, BofA Securities
Energy — Alternative Energy (No. 1)
Energy — Electric Utilities (No. 1)
What’s the best call you’ve ever made?
I think the most consistent calls that I’ve made are those where you remain open-minded and have mental flexibility. You’re not committed or wed to anything, and you value the data points independently and dispassionately as they come in. Specifically, one might be the downfall of SunEdison. The consistency of documenting that through 2015 and ’16 cemented my position in alternative energy, considering that was something of a novel effort for me. The alternative energy side ultimately proves to be where we have had the most success addressing some of the challenges, whether that was SunEdison going into its eventual bankruptcy or Dynegy, which was another power company in financial turmoil earlier in the decade. Both of these were moments of clairvoyance, where we learned not to be wed to one position.
What’s the worst call you’ve ever made?
I think for every reason that it’s difficult to admit your defeat, it’s also difficult at times to be mentally flexible, to understand that stories are evolving. For instance, something like SunPower Corp. or NextEra Energy Partners, where we at times underestimated the macro backdrop. We’re so fixated, at times, on some of the nuances of whether a company is going to meet guidance or what exactly the discrete cash flows of a company are, and we lose sight of the bigger picture that admittedly comes back to the bigger backdrop.
How has your job changed since you started out?
The job has only accelerated in the trend it was already going in over the last year and accentuated where the real value of the field of research is. It really lies in having differentiated experts and views across the sector. The most meaningful transition in the job and role has been pivoting toward understanding that in the echo chamber that is Wall Street, there is a need and hunger for independent perspectives that come from across the country and across the globe and challenge consensus thinking. That provides on-the-ground, verifiable data from “Main Street” that differs and contrasts to what the status quo thinking is in New York.
What one thing should clients know about your area of coverage?
Said simply, decarbonization of the economy and the adoption of renewable energy are an inalienable trend that recognizes that energy is fundamentally deflationary and technology continues to improve. More to the point, this sector is one of technology. It is capital-intensive, and because of that, we’ve seen dramatic changes in what is possible and what is achievable in a very short period of time. With that, society at large and investors have failed to understand and imagine how quickly the world and specifically the embedded technologies in clean energy have transitioned — so much so that there are many political misperceptions about what is [possible] and where the world is going today relative to the underlying realities of what these technologies can deliver.
Clients also need to understand that while cheap energy and adoption of renewables are a foregone conclusion that is only accelerating in trend, enabled by expensive fossil alternatives, there needs to be an underlying recognition that there’s a difference between cheap energy and reliability and resiliency. And customers want both.
What does it mean to be an all-star analyst?
It means you have got to keep your head down and your nose to the grindstone, and you need to keep asking yourself what you’re missing. I think the irony in asking the question is it requires consistent and persistent humility. Understanding that yesterday’s successes do not beget or do not enable today’s. And understanding that every day you need to ask yourself what is evolving in the energy market, across utilities or power or what have you, and what are you missing? And what is the emerging debate that you need to make sure you’re on top of? It is simply not having a certain level of hubris.
Rod Lache, Wolfe Research
Consumer — Autos & Auto Parts (No. 1)
What’s the best call you’ve ever made?
The call that made my career was being negative on U.S. automakers in the late 1990s and early 2000s. We took a big-picture view at the time, arguing that their business strategies were flawed and doomed to fail. We ultimately lowered our General Motors price target down to $0, and that came to fruition when they reorganized under bankruptcy. I think that we helped a lot of investors make money, or avoid losing money, back then. While our client base has turned over in the 20 years since and we’re actually bullish on the U.S. [original equipment manufacturers] now, there’s a lot of institutional memory from that call. In many cases, the predecessors to the analysts that I speak to now recommended us to others at their firms and elsewhere.
A close second-best call has been being bullish on Aptiv, originally known as Delphi Automotive, for most of the time since the company emerged in its current form ten years ago. The stock has gone from $17 to $170 over that time frame.
What’s the worst call you’ve ever made?
Our worst calls were the ones in which we overlooked longer-term secular or structural trends and recommended a stock based on near-term stuff, like strong earnings or cash flow. American Axle & Manufacturing is a good, or bad, example. We recommended the stock on October 1, 2018, at $17.44 based on our view that the company’s free cash flow provided exceptional risk/reward. The stock is just above $10 now. The S&P 500 has appreciated by 66 percent over that time frame. I still kick myself on that one, especially because the AXL recommendation was embedded in a report that mostly talked about the longer-term disruption that we saw coming, including vehicle electrification, which has since led investors to question American Axle’s terminal value. I should have taken a step back and thought about my own longer-term view.
How has your job changed since you started out?
A lot has changed. We have many more clients to service now, with highly varied views on what will drive valuation. There’s also a lot more news and varied sources of information. That can feel overwhelming. But in my mind, the most noticeable difference is that a larger proportion of our clients are beholden to short-term performance metrics. They don’t operate with permanent capital, so their assets under management can decline rapidly if they don’t pay attention to the short term. That makes it harder to make longer-term thematic calls now. I still think that those are the best ones. But they are sometimes harder to make.
What one thing should clients know about your area of coverage?
Two things: One, history repeats itself, so it’s helpful to look for lessons from the past, and two, the long-term outlook will ultimately be much more important than the short term. In other words, the best-positioned companies will make up for short-term problems if they are positioned to benefit from a rising tide — i.e., secular growth.
What does it mean to be an all-star analyst?
It means that we’ve been doing this for a long time. And I think time is helpful — partly because “old-timers” can gain some perspective, which investors find valuable, and partly because the old-timers have had an opportunity to build relationships with industry executives over the course of their careers. Many of the division heads, COOs, and CFOs that I’ve known for ten or 20 years are now CEOs. We talked to them about strategy back then, and we share thoughts about strategy today. That dialogue has been very helpful to us because we often know what they are thinking about and how they are thinking.
Benjamin Swinburne, Morgan Stanley
Technology, Media, & Telecommunications —
Media (No. 1)
Technology, Media, & Telecommunications — Cable, Satellite, & Telecom Services (No. 3)
What’s the best call you’ve ever made?
Two favorites: In July 2009, I upgraded the media industry to attractive and CBS from underweight to overweight with the stock around $6. Over the next three years, media was the best-performing subindustry of the S&P 500 other than auto, which had to be bailed out during the crisis.
In January 2015, I downgraded media and highlighted rising cord-cutting as a growing threat to the sector, including Disney’s ESPN. That August, Disney announced they would miss their ESPN guidance and the sector shed $50 billion in value in a day.
What’s the worst call you’ve ever made?
I downgraded Disney a month before Frozen came out — enough said. It was probably the most profitable film in total profit dollars in the history of Hollywood, driving outperformance of Disney shares for over a year.
How has your job changed since you started out?
It has gotten better. The tools we have to do our job have improved markedly, and we have used efficiency gains to scale our coverage universe to over 30 stocks. That wider look without sacrificing depth comes from Morgan Stanley’s commitment to research and resource allocation.
What one thing should clients know about your area of coverage?
Never bet against the American couch potato. Our appetite for content is consistently underappreciated, as evidenced by the number of devices we all own and the continued expansion of content consumption across video, audio, and news.
What does it mean to be an all-star analyst?
It means you love what you do, you are intellectually curious and intellectually honest, and you know how to build relationships through humility and empathy. My advice to analysts early in their career is that this is a marathon, not a sprint, and that relationships are as important as any other asset you can build for your franchise.
Jeffrey Zekauskas, JPMorgan Chase
Basic Materials — Chemicals (No. 1)
What’s the best call you’ve ever made?
The best calls are the ones in which the largest capital appreciation is captured at the lowest risk. We identified LyondellBasell Industries as an undervalued high free-cash-flow generator after it emerged from bankruptcy in 2010. Lyondell was trading in the pink sheets at that time and was viewed as an exceptionally risky investment. It went on to become one of the most valuable and important companies in the chemical industry.
What’s the worst call you’ve ever made?
The worst calls in my own case have been errors of omission, particularly involving changes leading to higher business valuations. It is not so much that we have misconstrued business fundamentals. It is more the case that we have underappreciated the extent to which valuations can rise when investors come to appreciate that a business is a good one and its longer-term prospects are strong. In my own case, there have been capital appreciation opportunities lost in the paint and coatings sector over time.
How has your job changed since you started out?
A key change to sell-side business analysis over time is that the best research is now carried out by effective teams. The standard for a decision involving large capital investment for fund managers and their teams is high. Investment cases are to be clearly articulated with appropriate precision in real time. Investors look to the analyst for a complete understanding of business fundamentals, analytic detail concerning key issues, and accurate fundamental calculations bearing on value.
What one thing should clients know about your area of coverage?
The company business models in basic materials are strong and resilient, but management decision-making matters. Should the timing of investment ownership prove a misstep, business fundamentals should eventually repair the error. But there are no business models in materials that are sufficiently strong that managements do not play a decisive role in long-term investment return.
What does it mean to be an all-star analyst?
Clients want to be able to know in three minutes what it has taken you three years to understand. The analyst should be able to translate a complex business understanding into a simple business case.
Read more:
The 50th All-America Research Team
The New Stars
The MVPs
Remembering Tobias Levkovich
