The Best of the Buy Side 2004
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The Best of the Buy Side 2004

Selecting the best stocks, and sidestepping the worst, is especially difficult in unsettled markets like this one. These analysts made it look easy -- and without a lot of help from Wall Street.

Click here to read about the winners.

Making money in stocks has rarely required as deft a touch as it has this year. Consider: As of mid-October semiconductor shares had lost almost a third of their value, while closely related sectors like Internet services and consumer electronics had soared by more than 40 percent. Steel shares? Up 22 percent. Aluminum? Down 17 percent.

It has been that kind of year, making for a striking contrast with 2003, when a broad-based recovery lifted the entire Standard & Poor's 500 index nearly 29 percent. Although this year's market has been flat overall -- the S&P 500 was down a fraction of a point as of mid-October -- it was marked by extreme gains and losses in various sectors and particular stocks.

So treacherous -- yet tempting -- a market fairly shouts out for astute research to alert investors to take a look at, say, EBay (up 45 percent through mid-October) and shoo them away from Cardinal Health (down 33 percent). Although many analysts at brokerage firms still offer first-rate guidance, buy-side firms have had to do much more on their own as their sell-side counterparts have had to cope with the upheaval caused by regulators' crackdowns on conflicts of interest and by the belt-tightening prompted by the postbubble bear market. Today there are fewer sell-side analysts covering fewer stocks than there were as recently as four years ago.

More than ever, some of the best research is being conducted off Wall Street -- at money management firms. Buy-side research directors, in stark contrast to their sell-side colleagues, have been expanding their staffs, partly to fill the void left by brokerage firm cutbacks. Michael Mayhew, CEO of Darien, Connecticut­ based consulting firm Integrity Research Associates, estimates that brokerage firms have reduced coverage by 30 percent since the market's peak in early 2000.

To find out which buy-side analysts are doing the best job, Institutional Investor sought out the opinions of brokerage firm analysts who received votes in II's most recent All-America Research Team survey (October 2004). In all some 480 analysts from nearly 90 firms responded.

A handful of asset management firms' research departments stand out. Wellington Management Co. places four analysts on the buy-side team, which features 11 researchers in nine categories. T. Rowe Price Associates has two winners, and Credit Suisse Asset Management, John Hancock Funds, MFS Investment Management and State Streeet Research & Management Co. tally one analyst each.

In a rarity over the 25-year life span of the Best of the Buy Side, a hedge fund, Citadel Investment Group, joins these more traditional money managers in placing a researcher -- insurance analyst Daniel Johnson -- among the group. This is not the first time a hedge fund analyst has appeared in these rankings (in 1998, Tiger Management retailing researcher David Ott was selected), but it does attest to the clout a small number of relatively young alternative-investment firms have among the Wall Street analysts who vote in this poll. Johnson, who joined Citadel from long-only firm Brinson Partners in April, says conducting research for the hedge fund isn't that much different from analyzing stocks for Brinson. Citadel "isn't a buy-on-Monday, sell-on-Tuesday shop," he points out. Johnson spends about 85 percent of his time exactly as he did at Brinson -- researching existing and potential long positions. And the other 15 percent? That, he says, is devoted to "looking for short-term, event-driven situations" -- an exercise that perhaps got a little easier after New York State Attorney General Eliot Spitzer ramped up his probe of insurance companies.

All of this year's Best of the Buy Side researchers made outstanding stock picks. T. Rowe Price media and technology analyst Henry Ellenbogen (the only winner in two categories) tuned in early to satellite radio service XM Satellite Radio Holdings. On his say-so, T. Rowe put $66 million into the stock in the fall of 2003 -- and the shares had risen 136 percent by mid-October 2004. MFS telecommunications analyst Nevin Chitkara didn't buy the consensus view in spring 2003 that Sprint Corp. was beyond repair. He advised MFS portfolio managers to purchase the devastated stock of its cellular business, Sprint PCS; those shares had run up a more than 100 percent gain in the 18 months ended mid-October. And Ann Gallo, a Wellington health care analyst, decided she didn't like the pallor of hospital stocks early this year and looked elsewhere for value. She found it at Allscripts Healthcare Solutions, a company that electronically transmits doctors' prescriptions to pharmacists, and Covance, which handles early-stage clinical trials for big drug companies. Through mid-October, Allscripts had gained nearly 69 percent and Covance 48 percent.

What makes these analysts even more impressive is that they and their buy-side colleagues are having to keep tabs on an increasing number of stocks. Buy-side researchers' coverage grew from 47.7 companies per analyst on average in 2002 to 59.7 in 2003, according to Connecticut-based consulting firm Greenwich Associates. This expansion is not attributable only to Wall Street's diminished research resources. "We continue to add more analysts because of new strategies, because there are more public companies and because we have seen a lot of growth in small- and midcap platforms -- so we need more bodies," says William Stromberg, Baltimore-based director of T. Rowe Price's global equity research.

Money management firms have expanded their research departments, though not quite enough to reduce coverage lists. The average research head count of 8.6 analysts per firm in 2003 has climbed to 10.8 this year, according to Greenwich. Its surveys show that 40 percent of asset managers expect to add researchers again next year.

At T. Rowe Price, analysts' ranks have grown from 28 to 34 over the past five years, says Stromberg. (And that's not counting a substantial number of portfolio managers with research credentials.) Part of this growth stems from T. Rowe's desire to track new listings and move into new areas, he says. But, like other buy-side research directors, he is concerned about compensating for a falloff in Wall Street research. "In the past we relied on independent, third-party and sell-side research in less-key areas," Stromberg says. "We're not as willing to do that today because of quality and independence issues." Sell-side analysts are by and large younger and less experienced than they were five years ago, he notes. And, as a by-product of the new regulatory regime, he says, "risk aversion is extreme on the sell side."

Other buy-side research directors report that they don't much rely on brokerage firms for tough-to-ferret-out information. "We use the sell side as a proxy for the expectations and sentiment of the market," says David Phillips, research director of Oppenheimer Capital in New York. "And they're useful for setting up trips." Independent research houses, he contends, do better detective work.

Most buy-side analysts today have at least some portfolio management responsibility, either in running a share of a research-department-selected fund or a portion of a broader portfolio. MFS's Chitkara, for instance, oversees the telecommunications-related pieces of the $2.8 billion MFS Research Fund and the $161 million Core Equity Fund; MFS offers $9 billion of analyst-run portfolios. T. Rowe, too, has embraced this hybrid analytical approach: It has ten portfolio manager­analysts, 22 portfolio managers and 34 analysts running its $125 billion in U.S. equities. "The job is more fun when you're pulling the strings," notes Stromberg.

Amid the high-risk conditions of the current market, knowing when -- and when not -- to pull the strings is all-important. "It's become more of a stock pickers' market," says Stromberg. "And that plays to the strengths of the firms with deep research departments." And the best individual talent.

This feature was overseen by Director of Research Operations Group Sathya Rajavelu, Assistant Managing Editor for Research Lewis Knox and Senior Editor Jane B. Kenney with assistance from Researcher Russell Bradley-Cook.



T. Rowe Price Associates

August 2000 wasn't the best time to become a technology analyst. Just a few months earlier, the giant tech-driven bubble had burst, and the great temptation for tech analysts old and new was to load up on the handful of seemingly safe technology stocks. Only a couple of months out of the University of Chicago's MBA program, Donald Easley, T. Rowe Price Associates' brand-new computer hardware analyst, eschewed the simpleminded safe-stock gambit.

One name that surfaced like a pop-up ad among sell-side researchers as a low-risk technology play was Sun Microsystems, the network computing giant. Sun shares seemed to defy gravity, rising about 65 percent in the first eight months of 2000 despite plummeting tech stock indexes. Easley decided to conduct his own review.

"I spoke with CIOs of large companies and learned that they were moving away from the proprietary, high-cost UNIX platform that Sun focuses on and toward the more standardized Microsoft platform," recalls the 32-year-old analyst, who manages a portion of the $3.7 billion T. Rowe Price Structured Research Fund. (The firm has more than $150 billion in equity assets and $207 billion in total assets.) Sure enough, Sun shares plummeted from 63.90 on August 28, 2000, to 3.97 in mid-October 2004.

Easley, who makes his first appearance on the Best of the Buy Side this year as a result of a tie with fellow T. Rowe Price analyst Henry Ellenbogen and Wellington Management Co.'s Eric Stromquist, has developed a first-rate set of contacts and become more proficient at the kind of distribution channel checks that kept him away from Sun. The Swarthmore College graduate, a dedicated value investor, pays particular heed to quality of management, market share, cash flow and return on capital. He maintains models on 35 companies.

Easley is forever trying to home in on true revenue drivers and updating his five-year forecasts. "That's more instructive than merely forecasting the next quarter or two," says the onetime Bank of New York credit analyst.

What has he been buying? Easley's No. 1 pick since the start of 2002 has been Dell, which was up 28.2 percent through mid-October 2004, versus a 3.5 percent drop in the Standard & Poor's 500 index. -- Ben Mattlin



Wellington Management Co.

"An independent, original thinker with long experience" is what one brokerage firm analyst calls Eric Stromquist. The description of the 46-year-old semiconductor and computer hardware analyst for Wellington Management Co. proved to be particularly apt during the technology stock bubble. Stromquist turned bullish on semiconductor chips in late 1998 and rode the tech rally through its March 2000 peak, for gains of about 400 percent; he then took profits, convinced that investors were "desperately looking for speculative opportunities." Not surprisingly, his sell-side counterparts hail him for being attuned to the chip market's ups and downs. Stromquist, who makes his first appearance on the Best of the Buy Side, shares the honors in technology research with T. Rowe Price Associates analysts Donald Easley and Henry Ellenbogen.

The Massachusetts Institute of Technology physics graduate researches stocks from the top down, beginning with a thorough assessment of supply and demand among customers and suppliers. Next, he examines such factors as inventory policy to see how each company is prepared to meet the industry cycle. Investors, he says, often confuse good management with "simply being in the right area or aligned with secular trends."

Stromquist, who enjoys studying the philosophy of science and repairing his wife's Porsche, is "not easily influenced by the flavor of the day," as one sell-sider puts it. The 15-year Wellington veteran, who tracks 40 companies, helps run a number of the firm's institutional portfolios (its assets total $423 billion, with $283 billion in equities). "Thinking differently, to borrow Apple's slogan, is the only way to get an edge," says Stromquist. -- B.M.



Credit Suisse Asset Management

Erik Mace admits to an addiction that is commonplace among retail analysts: He can't stop evaluating stores, even in his free time. "When I go into department stores, shopping for clothes for my kids, I can't help noticing if there's inventory that's piled up, which means the store's going to have an excess amount of markdowns and problems," Mace laments. "It's a blessing and a curse."

But the Credit Suisse Asset Management analyst doesn't let his personal preferences -- he can take or leave Starbucks Corp. coffee, but he likes the stock -- get in the way of sizing up investments. "Retail analysts seem especially prone to falling in love with stocks and sticking with them even when they should back away," says one Wall Street researcher, "but Erik manages to stay rational." As Mace, 35, puts it, "The numbers can't lie."

Selected to the Best of the Buy Side for a second straight year, Mace uses various analytical tools to help him establish fair value. He's particularly fond of incremental return on invested capital, which indicates whether a company's return on investment is growing or declining.

Once Mace decides that a stock is cheap, he's confident about recommending it to CSAM's portfolio managers, who oversee $83 billion in equity (the firm has $335 billion in total assets). "If my valuation framework shows upside that's better than what the Street thinks, that's an opportunity," he says.

Mace keeps tabs on 100 companies and tracks 30 to 40 of them closely. They're as diverse a group as you would find at any megamall, ranging from bookstores to clothiers to restaurants to supermarkets to gaming-and-lodging outfits.

The University of Virginia and Columbia Business School grad made one of his more celebrated calls late last year on Starbucks. The coffee chain's shares had jumped more than 50 percent in 2003's market rally, and some money managers had begun taking profits. Mace, however, believed that the Seattle company's rising incremental returns suggested that further gains were brewing. By mid-October 2004, Starbucks shares had jumped by a further 33 percent.

An opera buff and scuba-diving enthusiast, Mace got his start in money management at Warburg Pincus Asset Management in 1998 (CSAM bought its asset management business the following year). Shopping, or at least serious browsing, is a hobby that offers stock market insights. "If the shopping experience isn't pleasant, that could indicate a more significant problem," he explains. Ultimately, that's going to be reflected in the numbers -- and the share price. -- B.M.



MFS Investment Management

In a recent conversation with Nevin Chitkara about a small-cap telecommunications company, a stunned Wall Street researcher says he listened to his MFS Investment Management colleague "throw out questions about financings and goings-on that I didn't know about, and I thought I knew that story the best on the Street." The incident wasn't a fluke, confides the humbled but highly regarded sell-sider. "In the past 12 months," he says "we've had several conversations where he has brought up information that was new to me."

Now in his eighth year at $137 billion-in-assets ($102 billion in equities) MFS, Chitkara, 36, reports that he picked up his investment philosophy while at General Electric Co., where he spent five years as an M&A analyst in a business development group that reported directly to legendary CEO Jack Welch. GE's goal, says Chitkara, was to "buy good businesses with durable franchises and not to overpay for them."

When considering stocks to recommend to Boston-based MFS's 20 equity portfolio managers, Chitkara, a newcomer to the Best of the Buy Side, says: "I look back over the past five years and ahead five years and ask, Does the company create value? How sustainable are the margins and cash flows?" A sell-side researcher who knows Chitkara's work well says that the Boston University graduate, who has an MBA from Massachusetts Institute of Technology's Sloan School of Management, is a quick study: "He can very, very rapidly pick up on nuances."

The Long Island native's value-based methodology was behind his buy last year on Sprint Corp. The company had been hard hit by the sharp downturn in the telecommunications business in 2001, and its capital structure was confusing. In 1998, Sprint had bought out its partners in Sprint PCS but kept shares of the wireless company separate from its own wireline stock.

"The wireless business had been given up for dead, and the Street was concerned about weak growth," Chitkara recalls. Early in the spring of 2003, he concluded, based on cash flow projections, that the PCS stock was grossly undervalued. On Chitkara's advice, MFS portfolio managers started loading up on the wireless shares at 4.00. Shortly thereafter, on April 23, Sprint proposed a two-for-one swap of PCS stock for Sprint shares to combine the two. (By midyear 2004, MFS owned more than 50 million Sprint shares, according to public filings.) The stock was trading at 20.68 in mid-October, so, adjusting for the swap, MFS more than doubled its money. -- P.A.



Wellington Management Co.

As Wellington Management Co.'s health care specialist, Ann Gallo covers what she refers to as a "hodgepodge" of sectors: drug distributors, drugstores, hospitals, health plans and health information technology -- several hundred stocks in all. Most researchers wouldn't know where to begin. Yet Gallo, who manages Wellington's health care funds, considers her wide beat an advantage in being able to discover the best stocks in an eclectic group.

"Stock picking is the most important thing I do, but being able to move money in and out of subsectors adds extra juice," explains Gallo, 39, who is in her sixth year at the Boston money manager (which has $283 billion in equity assets and $423 billion in total assets). "You don't want to be in a position where you have to recommend the best stock in a bad sector."

The third-time repeat member of Best of the Buy Side reports that she can leverage information gleaned from one management meeting by applying it to other health care sectors. "If I'm talking to the head of drug distribution at Aetna, and he's seeing a trend to unit growth and price inflation," she explains, "I ask myself, How is that going to translate to CVS or Walgreen? Talking to the health insurers gives you a view into many areas of the industry."

Assimilating lots of data requires a special personality as well as exceptional skills, observe Wall Street analysts. Boston College graduate Gallo "has a very tenacious approach," notes a sell-side counterpart, "but she wants to learn only what she needs to learn. She doesn't get bogged down in the weeds." Her knack for extracting the information she wants quickly works particularly well in "a volatile group like health care," points out another brokerage analyst. Picking up insights from all corners of the health care business lets Gallo be "out in front" on key developments, he notes.

Early this year, Gallo, who earned an MBA at Massachusetts Institute of Technology's Sloan School of Management, concluded that hospital stocks weren't likely to perform well because, among other things, growth in admissions was slowing as hospitals lost patients to ambulatory-care and specialty hospitals. So she changed prescriptions, recommending Allscripts Healthcare Solutions, a company that electronically transmits doctors' prescriptions to pharmacists, and Covance, which manages early-stage clinical trials for big drug companies. This year through mid-October, Allscripts had jumped 68.9 percent and Covance was up 48.1 percent; hospital shares, meanwhile, had dropped 17.1 percent in that time. -- Michael Sisk



T. Rowe Price Associates

In the fall of last year, Henry Ellenbogen decided to buy the stock of XM Satellite Radio Holdings. One of the two licensed players in the new but promising field of subscription-based radio, XM appealed to the T. Rowe Price Associates analyst because it fit nicely with one of his broad investment themes -- that a digital world in which consumers say, "I want what I want when I want it," is replacing an analog world in which companies say, "We'll give it to you when we can make the most money." Ellenbogen preferred XM to its smaller rival, Sirius Satellite Radio, because XM produced its own content and seemed better able to realize the medium's potential.

The analyst, a repeat member of the Best of the Buy Side and our only winner in two categories (Media and Technology, where he ties with fellow T. Rowe Price analyst Donald Easley and Wellington Management Co.'s Eric Stromquist), was also aware that the fledgling company was undercapitalized. So Ellenbogen approached XM's management and negotiated the direct purchase of 5 million new shares for $66 million for T. Rowe's Midcap Growth and New Horizons funds, which he runs. From September 2003 through mid-October 2004, shares of the recapitalized XM had gained 136 percent.

Ellenbogen's decision to purchase XM stock typifies his approach to the roughly 50 media and technology stocks (many of them Internet-related) that he covers. The Harvard University graduate, 31, operates like a later-stage venture capitalist who aims to fund the best-run company in a business with exciting long-term prospects. "His thoughts on a company are always in the context of the fabric of the sector," notes one sell-side researcher. Ellenbogen, adds another, is more a "steward of capital" than an analyst or portfolio manager.

Ellenbogen, who also earned law and business degrees from Harvard, has been a big backer of search engine provider Google; in August, T. Rowe Price (which has more than $150 billion in equity assets and $207 billion in total assets) was one of the largest investors in the company's novel Dutch auction IPO. Although the analyst concedes that Google carries a lot of risk -- namely, a lack of revenue diversity, a flat management structure and an inchoate corporate culture -- he's impressed by the company's product-development skills and revenue-growth potential, particularly overseas. T. Rowe Price bought Google shares at 85.00 in August; by mid-October they had jumped to 144.11.

"People's ability to create technology is often ahead of their ability to use it," says Ellenbogen. "But it's increasingly clear as the Internet becomes a growing part of our lives that many of these businesses will be with us for the foreseeable future." -- B.M. and M.S.



State Street Research & Management Co.

Energy analysts have traditionally specialized in either oil and gas or coal. State Street Research & Management Co.'s Denis Walsh covers all three, giving him a special "knack for predicting the commodity cycle," says one Wall Street researcher. "He doesn't hesitate to commit to a call early in the cycle."

The 44-year-old Walsh, who has been covering energy stocks for 11 years and has now appeared five times in the Best of the Buy Side, was quick to grasp how China's massive modernization push would affect the energy sector, especially demand for coal. Explains Walsh, "China wants to achieve political stability by moving 300 million people from a rural to an industrialized setting, which is the equivalent of building three cities the size of Philadelphia every year for the next 20 years." To accomplish its ambitious building plans, he adds, China will need "to consume a huge amount of energy and steel. And guess what you need to make steel? Coke." He contends that the market doesn't properly price coal-related stocks in view of the years of rising demand to come.

Walsh, who's a University of Massachusetts graduate with a master's in finance from Boston College, has been impressive in picking coal stocks. Here's how his long-term selections did this year through mid-October: Arch Coal, up 8.8 percent; Consol Energy, up 32.8 percent; Massey Energy Co., up 37.3 percent; and Peabody Energy Corp., up 46.9 percent. Walsh, who acts as portfolio manager for State Street's $500 million Large-Cap Analyst Fund (the $42 billion-in-assets firm oversees more than $16 billion in equities), also selected two Australian natural-resources companies in the second quarter of this year: BHP Billiton and Rio Tinto, both of which then rose 12 percent through mid-October.

Walsh expects China's GDP to keep growing at an 8 or 9 percent annual clip. What does that mean for coal stocks? Despite their steep gains this year and last, says Walsh, they will double over the next 18 to 24 months. -- M.S.



Wellington Management Co.

Harriet (Tee) Taggart of Wellington Management Co. makes seasoned Wall Streeters sound like stammering schoolboys. One brokerage analyst gushes that the 56-year-old analyst, who has a Ph.D. in financial economics from Massachusetts Institute of Technology and appears for the fifth time in the Best of the Buy Side, is "awesome"; another calls her the smartest person he knows.

After more than two decades of traveling the globe for $423 billion-in-assets Wellington, Taggart may know as much about the chemicals and environmental-services industries as any corporate executive, much less any analyst working on the buy or sell side. Because she's so well schooled in her coverage area, Taggart is "always willing to step out from the pack" in making stock selections, says one sell-side counterpart.

A fundamentals-based investor who likes out-of-favor stocks, Taggart defines her mandate as "covering every company, in every country, in my space." That means keeping tabs on some 600 stocks -- and following roughly 200 intensively -- in 45 countries. It's no surprise she's on the road about 40 percent of the time. The Smith College graduate, who also holds a master's in city planning from Harvard University, has developed an unprecedented roster of "firsthand" sources, says one sell-sider. She supplements their insights with frequent chats with other members of Wellington's 150-person research staff, who, as she puts it, "contribute pieces to the mosaic." Then there are Wall Street analysts' brains to pick. "She comes with questions in mind, never written down, and she's incredibly focused," says a sell-side chemicals researcher. "It's just question-answer, question-answer -- like a ping-pong game." With so many sources of information, "Taggart finds out about new developments before anyone else," says the brokerage analyst.

Such knowledge pays off. In late 2002, for example, Taggart pegged JSR Corp., a Tokyo-based supplier of specialized materials used to make liquid-crystal displays, as a beneficiary of the explosion in flat-panel TV screens. "At the time, most people were thinking of these displays only for cell phones and personal computers," recalls Taggart, who co-manages a global materials portfolio for institutional clients. JSR stock doubled on the Tokyo Stock Exchange in 2003, though it had slipped about 20 percent as of mid-October.

Taggart, a mother of two, took the nickname "Tee" when she was in first grade because Harriet was too formal. That, she says, has helped her cultivate sources of information around the world: "People have an easy time pronouncing 'Tee' in almost any language." -- B.M.



John Hancock Funds

Thomas Finucane is a man of deceptively simple desires: "I like to pick stocks that go up," smiles the 43-year-old former bank examiner, who shares the top rating in this category with Citadel Investment Group's Daniel Johnson. This is Finucane's first appearance on the Best of the Buy Side.

Sell-side analysts singled out Finucane for his work at Boston's State Street Research & Management Co., although he left that firm on September 1 to rejoin crosstown rival John Hancock Funds, where he was a bank stock researcher from 1990 until 2002. Finucane, who co-manages Hancock's $1.13 billion Financial Industries Fund, is on a team of financial-services-focused analysts and portfolio managers who run $5 billion in equity assets.

One of Finucane's Wall Street counterparts praises him for his "tremendous knowledge of all the companies and managements" in financial services. Such wisdom comes not only from his 14 years as an analyst but also from his stint as an examiner for the Federal Reserve Bank of Boston in the late 1980s. "I'm asking the same questions of managements today that I was in 1987," says Finucane, who worked part-time as a bank teller while an undergraduate in economics at the College of the Holy Cross earlier in that decade. He earned an MBA from the F.W. Olin Graduate School of Business at Babson College.

To evaluate financial institutions, Finucane focuses primarily on credit and interest rate risks, funding costs and sources and M&A strategies. "I'm a value guy," he says. "I run my screens on price-to-book and price-to-earnings and other metrics and compare them with historical valuations."

Early this year, Finucane concluded that interest rate uncertainties meant that banks were overvalued and recommended that State Street remain slightly underweight the sector. Instead, he pushed alternatives like bond insurer Ambac Financial Group, which he thought had great earnings visibility, skilled management and an attractive valuation. By mid-October, in a tough climate, Ambac shares had gained 9.7 percent, versus a rise of 4.5 percent for an index of regional bank shares. -- P.A.



Wellington Management Co.

As soon as the stock exchanges reopened after the terrorist attacks of September 11, 2001, William Wrightson of Wellington Management Co. started buying airline stocks. It was a high-risk move. Yet the global transportation analyst, who helps manage a number of the firm's institutional portfolios, was convinced that the stocks, hurt by the uncertainty hanging over the travel business, were selling at "ridiculously low" prices. So he purchased European and U.S. airlines that he deemed to have the best balance sheets and management teams (he won't say which ones). Within six months airline stocks had jumped more than 50 percent, and Wrightson had sold off his positions. U.S. airline shares subsequently dropped by more than 30 percent through mid-October 2004.

Wrightson, 38, who is named to the Best of the Buy Side for the first time this year, is value-driven and opportunistic. While at Princeton University, he served in the Reserve Officer Training Corps and spent a year on active duty at artillery school after college. He then entered the Army Reserve and joined brokerage Alex. Brown & Sons as a transport researcher. "My military training and experiences as an officer contribute much to my investment style -- thinking strategically while acting tactically," says Wrightson, who is descended from the first graduate of the U.S. Military Academy at West Point.

He "asks hard questions that get to the root of an issue," says one sell-sider, adding that discussions with Wrightson "become an intellectual joust, but in the end we're both smarter." Says another Wall Streeter: "Some buy-side analysts just ask, 'What have you got in transports?' Will talks about specific pieces of the industry -- less-than-truckload companies [which carry freight for multiple shippers], for example. He takes the conversation to another level."

Wrightson rates the quality of management near the top of his company criteria. "Excellent management at a bad company will reward shareholders more than bad management at an excellent company," he contends. After meeting executives, he asks himself, "Do I feel they're people I'm comfortable investing with?"

The eight years Wrightson spent as an analyst at Alex. Brown before joining Wellington in 1998 make him comfortable with Wall Streeters. "He understands what we're up to," says one sell-sider. For his part, Wrightson, who collects antiques, doesn't pay heed to sell-siders' stock ratings, but he does value their "sharing of ideas," updating him on shifts in investor sentiment and organizing visits to managements. He also appreciates big brokerages' overseas analysts for keeping him informed about "local news that doesn't show up in the U.S. media." -- B.M.



Citadel Investment Group

While an undergraduate at Indiana University, Daniel Johnson and some friends entered a stock-picking contest that was sponsored by the Wall Street Journal. Today, Johnson, 35, can't remember whether he made or lost money, but he did get hooked on investing. "I love the continual mental stimulus," the financials services company specialist confesses: "Everything changes, and the learning curve never ends." The University of Chicago MBA jumped in April from money manager Brinson Partners (part of UBS Global Asset Management) to hedge fund Citadel Investment Group, whose assets total $9.5 billion.

Chicago-based Citadel seems to have made a good long-term investment in Johnson (who shares first place in this category with Thomas Finucane of John Hancock Funds). The first-time member of Best of the Buy Side "is the smartest guy I deal with and the hardest worker," reports one brokerage researcher. "He learns the company, the management and the industry at a level and a depth beyond anyone else I have seen," the analyst says, adding that Johnson, who runs some money at Citadel, just "keeps digging and digging and digging."

Johnson, who won't discuss specific stocks, says he monitors 50 to 70 companies. He most values management skill and a strong distribution network. He prefers the newer breed of Bermuda-based insurers to the large, established property/casualty companies because, he says, the older companies have so many risky legacy issues, such as asbestos claims. Every insurance analyst has "to look beyond the reported numbers because a lot of insurance numbers are estimates," Johnson says. "And it's valuable to have industry relationships outside the companies because opportunity occurs when there's a big difference between what managements say and what industry folks say." -- P.A.

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