Do-it-yourself still mostly the better way

2001 Brokerage Report Card
How the advisors rate their firms’ research
 
Canadian Research	1999	2000	2001
 
Edward Jones	7.6	8.2	8.4
BMO Nesbitt Burns	7.4	7.3	8.0
Merrill Lynch Canada	6.1	8.0	8.0
National Bank Financial	7.6	7.5	7.6
Raymond James*	7.5	7.9	7.6
Canaccord	7.0	7.4	7.5
RBC Dominion Securities	7.5	7.1	7.0
ScotiaMcLeod	6.0	7.0	6.9
CIBC Wood Gundy	6.2	6.3	6.1
TD Evergreen	6.8	7.5	5.5
 
U.S. Research	1999	2000	2001
 
Edward Jones	9.5	9.3	9.1
Merrill Lynch Canada	8.7	9.0	8.7
Raymond James*	5.3	6.7	8.2
Canaccord	3.3	8.1	8.0
RBC Dominion Securities	8.4	8.1	8.0
National Bank Financial	8.2	7.3	7.7
BMO Nesbitt Burns	7.8	7.5	7.3
CIBC Wood Gundy	6.8	7.3	7.2
ScotiaMcLeod	7.3	6.9	7.1
TD Evergreen	7.8	8.0	7.0
*Raymond James acquired Goepel McDermid in autumn 2000
SOURCE: INVESTMENT EXECUTIVE RESEARCH

That brokers are unhappy with the quality of research by their firms should come as little surprise. After all, they have been telling Investment Executive that since we did the first Brokerage Report Card in 1993.

Indeed, this year’s results are no better. On average brokers rated their firm’s Canadian research at 7.3 out of 10. That compares with a 7.4 rating in 2000 and 7.0 in 1999. But this year’s ranking may be even less of a surprise given the draft report on Canadian analysts’ standards, released last month, by a committee set up by the Investment Dealers Association of Canada, the Toronto Stock Exchange and the Canadian Venture Exchange. The report makes it depressingly clear that positive research reports sometimes are aimed at pleasing companies with whom the analyst’s employer is doing or wants to do business.

Then there’s the age-old problem of getting too close to companies. Analysts who cover a stock over a number of years can become “understanding” of problems. If they genuinely believe the company is sound, they may feel it’s counterproductive to emphasize what they believe are temporary difficulties and issue reports that don’t sufficiently alert investors to risks.

Leaving aside these problems, the fact is that even the best and most objective analysts can simply be wrong in their diagnoses.

As a result, brokers are well-advised to check a number of different sources before recommending the purchase or sale of stocks. Many of the brokers surveyed by IE supplement their research by looking at work done by other firms at which they have contacts who are prepared to share.

But the biggest source of additional information is the Internet. The Net is, indeed, a vast and valuable resource. It is not easy, though, to access really good research. Most of that must be paid for and the majority is reserved for institutional clients.

Here are some sites recommended for the quality of their research:

Veritas Investment Research Corp.

(www.veritascorp.com)

Highly recommended by and presently only available to institutional investors, Toronto-based Veritas is an independent company with no vested interest in any stocks. With roots in forensic accounting, it does in-depth research and gives opinions on companies but not specific buys and sells. It is looking at ways to service the retail market.

Financial Post Data Group

(www.financialpost.com)

FP Data has a long history of providing analysis of companies but it is expensive and does not provide opinions. Although not confined to institutional investors, that’s the market it aims at and the price — about $4,000 a year for basic service — is high for most brokers. However, it is considering a less-expensive service aimed at individual investors and brokers.

Bond rating agencies

An excellent source of opinion are the bond raters. Standard & Poor’s Corp. (www.standardandpoors.com), based in New York and which recently took over Canadian Bond Rating Agency, and Dominion Bond Rating Service Ltd. (www.dbrs.com) in Toronto rate many Canadian companies. Full subscriptions are pricey — for example, DBRS charges $2,500 a year for Web access to all its material — but both it and S&P put out press releases that highlight concerns and anyone can access those free of charge. In both cases, go to “search” to get a list of releases for the particular company you’re interested in. Moody’s Investors Service Inc. (www.moodys.com) has no free company information available.

MPL Communications Inc.

(www.adviceforinvestors.com)

This is a much more affordable source and offers both opinion and analysis. Toronto-based MPL publishes The Investment Reporter, Investor’s Digest, Money Reporter, Canadian Mutual Fund Advisor and The Blue Book of Canadian Stocks. MPL had been updating reports and opinions on companies every quarter but is moving to immediate updates by the beginning of May. The opinions come from its investment planning committee, which meets every week. The committee consists of in-house editors and a group of retired analysts.

The price is affordable — $194 for the first year and $522 a year after that for the basic service and research package together. The basic service provides access to daily e-mail on requested stocks, advice articles, stock screening, short positions, insider trading reports and concensus data on analysts’ recommendations.

Concensus data is divided into two-week periods so you know when the recommendations were made. The advice articles usually contain buy, hold or sell recommendations and/or target prices.

The research section has detailed reports and opinions on more than 2,000 Canadian stocks. This is an enhanced version of the Blue Book, which provides printed copies of reports but only for 256 companies.

FundMonitor.com Corp.

(www.fundmonitor.com)

In addition to its well-known coverage of mutual funds, Toronto-based FundMonitor.com now offers reports on 1,500 Canadian stocks and 7,500 U.S. stocks. All stocks traded on U.S. stock exchanges are compared to an industry average. The material is almost entirely financial data, but ratios are highlighted if they suggest a stock is undervalued or overvalued at its current price. Until the end of May, the data is available to all Fundmonitor subscribers but after that will be accessible only to “premium service” subscribers, who pay $65 a month or $780 a year. A free month’s trial is available. There is also some good free material available.

SEDAR

(www.sedar.com)

The system for electronic document analysis and retrieval, better known as SEDAR, is the system used for electronically filing most securities related information with Canadian securities regulators. It provides financial reports from all publicly listed companies as well as annual and quarterly financial reports, press releases and prospectuses. Also look at the annual information forms. These usually provide a longer-term picture of the company and often contain a wealth of information not included in annual reports.

The Globe and Mail

(www.globeinvestor.com)

This site provides news stories on companies plus a survey of recent analyst reports, giving a concensus recommendation of “buy”, “hold” or “sell” and an indication of how the concensus has shifted over the past week, month and two months.