A stock analysts' roadshow accents 'getting to know you'
Boston — Michele Preston, a microcomputer analyst with the brokerage firm L. F. Rothschild, Unterberg, Towbin, is trying to impress on her audience just how rapidly the industry she follows is changing. She's part of a ''road show'' for institutional investors - a type of presentation that many large brokerage houses send to major cities nationwide.
She describes the whole scene as a computer game called ''Battleships.''
''In the first part of the demo, there's a big battleship called 'WCI' and a lot of analysts running around in the trenches.
''Then the battleship fires and wipes out all the analysts.''
The audience laughs at this allusion to how Warner Communications and its troubled Atari subsidiary have confounded stock analysts in recent months.
''In the second part of the demo, there's another battleship, this one called 'TI' (Texas Instruments) and a lot of analysts running around in the trenches.
''Then the second battleship fires, and this time it doesn't wipe out all the analysts, just most of them.''
Another wave of appreciative laughter rises from the audience.
It's all part of a sales pitch which, the occasional chortle or even guffaw notwithstanding, is just about as understated as the wood-paneled Parker House room where the meeting is being held. Over 100 portfolio managers and other officials of pension funds and mutual funds are gathered to hear Rothschild's seven-member ''technology team'' hold forth with recommendations for buys among computermakers and other companies.
But the sales pitch isn't really for the stocks; rather it's for the analysts themselves. It's not quite analyst-as-superstar. But the idea behind this kind of seminar, says Rothschild research director Andrew Melnick, is to let investors get to know the analysts, to build their credibility.
''If in a couple of weeks one of our sales staff calls one of these people and says, 'Ray Bosso (technology team captain and the team's expert on mainframes and peripherals) has an idea; let me tell you about it,' they'll listen.''
For the brokerage itself, the seminars represent a long-term investment. No specific payoff is expected, Mr. Melnick says; that is, today's sale of stock is not necessarily to be traced to last week's seminar. ''But the seminar builds confidence, and that confidence translates into action.''
Stock analysts are prolific writers - Rothschild's Tech Notes newsletter has just come out with its second quarterly issue. ''And sometimes it seems as if the more reports these people (investors) get, the less they read,'' Melnick says. If investors get to see the analysts as real live people, and even meet one on one during breaks, the analysts' reports will be better read, he suggests.
A young ''buy side'' analyst with a Boston investment management firm, attending the session, concurs that this is a soft sell. He points out that most of those attending are portfolio managers, whose responsibilities are at the ''broad overview'' level, or analysts like him, who don't actually buy stock but make recommendations to others in their firms. If a brokerage house really wants to put the squeeze on an investment firm, ''They invite some of their traders to the Super Bowl.''
Francis A. LeCates Jr., research director at Donaldson, Lufkin & Jenrette Securities, an institutional brokerage in New York, concurs that analysts' personal presentations to institutional investors are a ''very, very important - really crucial'' part of a broker's marketing effort. But he also says seminars like Rothschild's, where several analysts in closely related fields address a large audience, are about the only time it makes economic sense to trot out more than one analyst at a time.
''It's just too expensive - not just in out-of-pocket costs like plane fare and renting a room and providing the food,'' but in staff time. ''These people are busy.''
Away from the office or not, ''sell side'' analysts are still under immense pressure to perform well on their turf. ''A rule of thumb accepted at this brokerage and at other houses is that half the energy output of a sell-side analyst is on the marketing side - whether on the phone with customers or in person,'' Mr. LeCates says. Performance is evaluated on the basis of letters from clients and the sales staff's surveys of which analysts the clients ''buy.'' ''We know who's valuable; what we don't know is why - whether it's the person's writing or ideas or their marketing. It may be the jokes they tell.''
Back at the Parker House, the Rothschild team is collectively bullish on high technology, predicting real growth in a period of moderate inflation. Among specific recommendations:
* IBM, an ''easy decision,'' says Ray Bosso. A ''more speculative'' tip is NCR. ''Their systems knowledge base has been very solid'' but their ability to transfer this to applications is unproved, he says. Also, ''Tandem Computers is well positioned to be in the forefront of the $24 billion mainframe market share growth.''
* Data General and Emulex are highly favored for above-average stock performance, says minicomputer analyst Frederic Cohen. Digital Equipment is also on Rothschild's recommended list.
* In the microcomputer field, Ms. Preston recommends Apple, Coleco, and Tandy Corporation (Radio Shack). The new ''Mackintosh,'' in the $2,000 price range, due out in January, is expected to be Apple's most important new product. Sales are expected to generate $1 billion in revenues, she says, ''and scattering Mackintoshes around offices will build demand for Lisa,'' a more expensive ($10, 000) Apple. Radio Shack may be associated in the public mind with computers for weekend tinkerers, but Ms. Preston suggests that Tandy will get a big share of the growing small-business market, with its distribution strength proving a big plus.