Analysts' Best Stock Picks For 2011

Raymond James is out with its Analysts Best Picks for 2011 report. We highlighted their picks from 2010 and those performed pretty well with a 22.3% return. In fact, their annual selections have a 10 year average return of 12.4%.

The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:

- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)

There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:

Bank of America (BAC): This name is interesting because it was also on the analysts' best picks list for 2010. However, over the course of last year the stock declined. Raymond James sees the price depreciation as further opportunity and is again a buyer of shares this year. Not to mention, some of the largest hedge funds in the game have sizable stakes in BAC, including John Paulson.

Halliburton (HAL): Arguably, the time to buy this name was during the Gulf oil spill when uncertainty abounded and the stock price was depressed. Yet, RJ feels the company will see near-term earnings momentum and a rebound in international activity. We've talked about how hedge funds are betting on higher oil prices as well.

Equinix (EQIX): This tech name is intriguing because it saw some volatility last year. And as we detailed in our Hedge Fund Wisdom newsletter months ago, a large shareholder (Shumway Capital) was reducing its position size and could be partially responsible for the volatility. Raymond James likes the company's dominant market position in the colocation market and data center industry.


Keep in mind that obviously with the market rally, a lot of these names have been bid up significantly already. Some strategists would obviously advocate waiting to purchase some of these names given that they're extended and knowing that the market doesn't go straight up forever. RJ's Chief Investment Strategist Jeff Saut expects a buyable pullback.

Embedded below is the full research on Analysts' Best Picks for 2011:



You can download a .pdf copy here.

For further research from this shop, head to the previous best stock picks for 2010 as well as Jeff Saut's risk management principles.

Hedge Fund GLG Partners: Research on Effect of Analyst Recommendations

UK based hedge fund GLG Partners is out with some intriguing research on the effect analyst ratings have on a stock. This is actually a follow-up to some previous commentary where they concluded the following:

- European analyst recommendations outperform
- 'Buy' recommendations outperform more consistently than 'Sell' recommendations
- A bunch of handpicked sell-side firms by GLG outperformed the rest of analyst recommendations in Europe

With that in mind, they move next to the topic of: Which analysts should you pay attention to? Simply put, they find that large broker 'buy' recommendations move junk stocks more significantly than any other category. They also find that 'buy' picks are generally more powerful than 'sell' picks. As one can imagine, stocks that are disliked take a beating when 'sell' recommendations are issued. Large brokers also have more of an impact when they put out a 'sell' on some of the most popular stocks.

Overall, some interesting research from GLG Partners, a hedge fund firm that was recently ranked 22nd on a list of the world's largest hedge funds. It's obvious that sell-side research and alerts have an impact on a stock price, it's just interesting to see it quantified. Things could get even more interesting if they had singled firms out and done a case by case study to determine which sell-siders had the most influence. It looks like we'll have to patiently wait for someone to generate such data.

Taken from GLG's website, embedded below is their look at what type of sell-siders you should pay attention to:



You can directly download a .pdf here.

For more insight from GLG Partners, we covered when Pierre Lagrange recently presented at a hedge fund panel. And for more of our coverage of the UK, head to our posts on positions hedge funds hold in the UK.

Earnings Estimates Still Too High (Just Like the Analysts)

Courtesy of a somewhat recent John Mauldin piece, we see that analysts have been far off the mark in their ability to forecast earnings.

They were way off in 2008:

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And you can bet 2009 will be no different, as already evidenced by the continual slide in their estimates.

(click to enlarge)

You would think that at some point, analysts would get the picture and face up to reality. That said, we respectfully ask: Are these guys on meth?!

Analyst Calls & Goldman Sachs Conviction Buy List

I've said before that I typically don't place too much weight on analyst calls, but today numerous analyst calls caught my eye and I wanted to post them up.

Firstly, in the oil arena, there were a few active analysts who revealed a myriad of opinions. Firstly, Morgan Stanley upgraded Transocean (RIG) to Overweight, citing that they think the credit crunch gives them an advantage, as smaller drillers will struggle to finance projects. This makes sense to me just given the fact that RIG is a behemoth in the drilling space now. But, I wouldn't cite it as one of the main reasons they will outperform. They've got tons of rigs already and have other ones scheduled to come off construction in coming years. RIG is easily one of my favorite long-term plays due to their dominant market positioning, their ability to raise dayrates fairly consistently, and the armada of rigs that they will have coming online in the near future.

Back in September, RIG was added to Goldman Sachs' Conviction Buy List. Shares have been demolished as of late, offering a possible opportunity for those with a long-term bullish thesis on oil and deepwater drilling. Boone Pickens' BP Capital had RIG as their 2nd largest holding as of last quarter. RIG has been trampled partly due to the decrease in the price of oil and partly due to forced selling by various hedge fund and mutual fund names. Overall, I figure RIG is a solid buy as long as oil remains above $70 a barrel, which gives them enough room to still maintain or increase the high dayrates they charge. They are seeing operating margins of 46% and return on equity of 38%. Their valuation is absurdly cheap, but I won't dwell on that given the fact that in this market, valuation got thrown out the window a long time ago. And, the cheap can always become even cheaper. But, the fact is that this company has solid fundamentals going forward long-term. They are seeing quarterly revenue growth of 116% and quarterly earnings growth of 101% on a year over year basis. They do have a lot of debt, but their strong cashflow generation should alleviate any major stress from that.

There was also a bevy of other oil related calls today by an analyst from Deutsche Bank. They downgraded tons of oil names, citing a worldwide recession in 2009. They have cut oil price forecasts to $60 per barrel in '09 and $58 per barrel in '10. They wrote, "This view implies that the marginal oil company will make zero profit for the next two years. It implies leveraged oil companies may go bankrupt. It implies GDP-sensitive (ie refiners/chemicals) companies will suffer. Ultimately, it strongly suggests upheaval in oil-revenue dependent states." While anything is possible considering the grave state of numerous economies worldwide, I still do not think a worldwide recession is in the cards. This will have to be continually evaluated as we receive new data each quarter, but I think this is a slightly harsh call. Should a worldwide recession emerge though, their call makes sense in that the leveraged companies will find it increasingly difficult. They have downgraded a myriad of names, including Marathon (MRO), Conoco Phillips (COP), Suncor (SU), and Hess (HES) among others. Its interesting to now note that they only have "buys" on two oil names: Occidental (OXY) and Canadian Natural Resources (CNQ). OXY is a name that has seen vast hedge fund ownership, including by that of Atticus Capital, Caxton Associates, Tudor Investment Corp, and BP Capital, among many others.

Lastly, Goldman Sachs was out making changes again to its Conviction Buy List. They added Waste Management (WMI) to the list, and removed Allied Waste (AW) from the list. However, they still maintain a 'buy' rating on AW (just not a 'conviction buy'). Additionally, they also added Marsh & McLennan (MMC) and Applied Materials (AMAT) to their Conviction Buy List.