Cool Hand Vik

Some analysts are hot, some are not. Judging from recent stock picks, Vik Grover, managing director of equity research at telecom investment firm Kaufman Bros. LP, is clearly not.

These days, analysts are being held more accountable for the information they pass along to their clients -- especially when their investment banks do business with the companies the analysts cover -- so maybe it's time to take a closer look.

Grover's record of covering telecom stocks has been pretty bad over the past year -- that is, unless you did the opposite of what he told you. For the last year, he's been bullish on some of the largest disasters in the space, including two of the largest bankruptcies, WorldCom Inc. (Nasdaq: WCOME) and Global Crossing Holdings Ltd.. Here's a sampling of some of Grover's research, given in reverse chronological order:

  • May 10, 2002: Grover issues a note maintaining a Buy recommendation on WorldCom, writing that the company "has one of the better balance sheets in the sector, positioning it, in our view, to survive the malaise and emerge a stronger company in 2H03." This note follows one in the same week that outlines a "12-Step Recovery Plan for WorldCom" that Grover says posits a strategy that "should restore confidence in the company among clients and investors and lead to a less pessimistic valuation."

    A month later, the boom is lowered on any remaining shreds of optimism investors might have mustered (see WorldCom Goes Boom).

  • May 9, 2002: Grover issues a note reiterating an Accumulate recommendation on Qwest Communications International Inc. (NYSE: Q). The possibility that the telco will sell its directory business gives him confidence that it could return to growth in 2003. He writes: "We have had concerns over the company in the past... However, we believe it makes no sense to 'beat a dead horse' and it's time to get constructive on Qwest."

    Qwest's bond rating was junked by Standard & Poor’s two weeks later (see Qwest Trashes Junk Rating), the initial tug in the subsequent unraveling of the company's credibility, as well as its share price (see Carrier Scandals: Who's Next?).

  • September 27, 2001: Grover issues an "Action Alert" note on Global Crossing Holdings Ltd., chiding investors who've allowed Exodus's Chapter 11 filing to lead them to "irrational selling" of Global Crossing stock (see Exodus: What's Next?). "No matter how you slice it, in our view Global Crossing is a real winner," Grover writes, reiterating a Buy rating on the stock and a $16 price target.

    By Christmas, Global Crossing's bankers had circled (see What's Next for GX?). By January, it was in Chapter 11 (see Global Crossing Falls Overboard).

  • August 1, 2001: Grover reiterates a Strong Buy rating on shares of Metromedia Fiber Network Inc. (MFN) (Nasdaq: MFNX), citing extensions it received on its credit facility. He writes: "We continue to believe this name is very undervalued at current levels... especially since it appears MFNX is close to completing a relatively non-dilutive financing contrary to other claims."

    Grover continued to defend the stock, even as it traded to under $3, until March 18, 2001, when he downgraded to Hold from Strong Buy in light of its default on debt. Metromedia hit Chapter 11 in May (see MFN Falls Into Chapter 11).

  • July 2, 2001: Grover reiterates an Accumulate rating on Genuity Inc. (Nasdaq: GENU): "We look for GENU to turn gross margin positive in 4Q01, aided by a heightened focus on loading its existing $3 billion network with customer traffic."

    A year later, Genuity's on the outs with Verizon and staring at bankruptcy (see Genuity Gasps for Breath).

This week, Grover is bullish on Level 3 Communications Inc. (Nasdaq: LVLT), Allegiance Telecom Inc. (Nasdaq: ALGX), and US LEC Corp., with Buy ratings on all three. He's got a Sell rating on Sprint Corp. (NYSE: FON). Care to place any bets?

Grover himself did not respond to calls and emails questioning his investment logic. But in these times, as Salomon Smith Barney analyst Jack Grubman is being hauled off for interrogation, the question must be asked: Is there a pattern here? (See WorldCom's Grubby Secrets.)

Kaufman Brothers' chief compliance officer and operations manager Tim Thomas was angry when we questioned Grover's judgment in this light. "I'm not answering any questions," he maintained. But when pressed, he did state that no equity analyst at Kaufman is allowed to hold a direct position in any firm they cover.

The firm can hold stakes, though, and it discloses in every equity report whether it has underwritten or makes a market in securities for the companies being reported on. Kaufman has underwritten and makes a market in securities of Allegiance Telecom and US LEC; it makes a market in securities of Level 3, WorldCom, Metromedia Fiber, and Genuity. It does not underwrite or make a market in securities of Qwest or Sprint.

— Mary Jander, Senior Editor, Light Reading
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Belzebutt 12/4/2012 | 10:01:32 PM
re: Cool Hand Vik Just how much incompetence does it take? The other explanation of course being a much more sinister one, that his employer fully supports his fraudulent recommendations.
willywilson 12/4/2012 | 10:01:32 PM
re: Cool Hand Vik Analysts don't get fired for bad stock recommendations. They get fired when investment banking revenues drop or aren't high enough. This is because the issuance of stock, and corporate mergers, pays the bills on Wall Street. "Research" is the wrapper. Investment banking is the fish. No analyst with any brains will ever let his or her research conclusions interfere with investment banking considerations.
hitekeng 12/4/2012 | 10:01:31 PM
re: Cool Hand Vik Being (and still for now!!) a Nortel employee (therefore a telecom insider), I've always taken analysts recommendations with a grain of salt. What do they know after all? They are somewhat disconnected from technology evolution and their conclusions are largely based on publicly published industy reports or flawed product analyses from outfits such a Current Analysis, CIR,.. (how do I know? because I had to correct so many of such and yet was still forced to leave other invalid info and features descriptions unchanged)...
Market analysis on the other hand is a sword that could cut both ways. So for instance looking at Exodus in retrospect, it was placed on a top 50 customers list with Nortel just few months before it went bankrupt (and was kept there for several reasons that I can not divulge, although working the account, I had already concluded internally that it "WAS AS GOOD AS GONE UNDER!!". So keeping Exodus on such a list benefited so many and fooled so many others (if you know what I mean...).
SO in the end and what it comes to the telecom industry (which we would ad should know best), I do not follow analysts recommendations (the only thing they could have checked in details and made recommendations upon is the company's financials and such can no longer be trusted) but rather go with my own due diligence....
Einstein2 12/4/2012 | 10:01:28 PM
re: Cool Hand Vik one - if a investment bank "makes a market" in a stock, that means they trade it. the traders would rather a sell recommendation because that will create more trades, and is probably opposite to what other analysts are saying.

two - who really depends on kaufman for research? they are a minor player. maybe they should be listened to more because they do no banking business, and are more likely to have a lesser bias. and the analysts have more hope to make a name for themselves by standing out, not just kissing a company's butt.

three - if grover were smarter he wouldn't have buried his reputation; this can't be because he is trying to prop up stocks. his credibility is ruined.

four - kaufman hasn't paid bonuses in 4 quarters at least. base salaries are low. those analysts would make more as an associate at a top 10 firm. so maybe people should feel so bitter about the analysts making so much money.

lastly - grover may be an idiot, but he wasn't making money off of banking deals, and trading volumes like grubman was. his best hope at this point is to get name recognition becuase he made the news at LR.
Holy Grail 12/4/2012 | 10:01:28 PM
re: Cool Hand Vik My 2 cents..

I'm not for one moment springing to the defense of Analysts here, but frankly if folks are too stupid to realise that anyone recommending a stock usually has some form of vested interest, then they are almost cetainly too stupid to be picking stocks themselves in any case.

I'd suggest that folks buying stocks do their own careful research before buying, if they don't have time or skills to look into a company properly and objectively, then don't buy.

You would not buy an asset like a property on the basis that some analyst reported that the houses built by Jack Offalot are well built and in a nice area, if you have any sense you would get a professional survey and take a long hard look around yourself. So why are stocks any different?

Caveat Emptor - Buyer Beware.

For the past few years the stock market appears to have become some sort of Casino, where fortunes are apparently won and lost in days and weeks, what is perhaps interesting to remember is that the underlying principles remain unchanged the risk - reward ratio is still alive and well, huge gains = huge risks - nothing comes for free in the this world.

I would love to be invested in stocks but the valuations (even todays valuations) are way too high. As far as I am concerned a stock market correction was way overdue, in fact I hope that it's not done yet, the sooner the economy get's back into the real world, the better it will be for everyone.

Greenspan was absolutely right - Irrational Excuberence - Now quit whining about Analysts and start looking at your own behaviour, if you've been speculating in the stock market over the past couple of years, chances are that you lost money, and at the very least you have been partly responsible for driving the stock market to unrealistic and unsustainable levels. It's not just crap Analysts, it takes two to tango.

Just my opinion of course.

jepovic 12/4/2012 | 10:01:28 PM
re: Cool Hand Vik If you're looking for a new microwave oven, and you're looking for advice on which model to pick, you wouldn't put much value in advice from a vendor or someone who depends on a particular vendor.

But when it comes to picking stock or where to put your retirement funds, people are listening to analysts that are anything but independent.

There should be a huge market for truly independent, competent analysts. Perhaps this market isn't as massive as some of the other stuff in the financial business, but still good enough.

I've met a few of these boys, and I have yet to meet one that impresses me. What can you expect from a 26-year who went straight from college to work as an analyst? All they read is other analysts reports and press releases. And this is one aspect of the telecom bubble that hasn't changed - they still influence the whole business. It's the same people, just a bit fewer of them.
boozoo 12/4/2012 | 10:01:28 PM
re: Cool Hand Vik Now what would you expect him to say? His company makes a market in some companies. Of course he has to write/rate then nicely.

Are they incompetent? Of course, since somehow they only picked the losers.

Which makes me wonder: why is Vik even allowed by law to speak as an "analyst" when it's obvious he'll polute the media with biased crap?
I know, some will say that he's allowed to have an oppinion.
However, he speaks from a position that can do damage to the investors that are not questioning Vik's motives.


wkdpssh 12/4/2012 | 10:01:26 PM
re: Cool Hand Vik Vik is no better and no worse than anyone else. In fact I like reading his material now more than ever because in this environment he's the only one saying anything different. If you actually buy or sell based on any particular analyst view you're nuts. You need to get all the info you can and figure out if there's any useful information to take from it. Vik's reports are interesting, especially now, because he points things out that nobody else does. For instance, on Sprint, his view is they are master of no single market, and in this environment that spells disaster. It's a good viewpoint. That doesn't make him right or wrong, just a useful part of the puzzle.

By the way they didn't mention TALK which is up about 800% since Vik recommended it at $0.30. And LVLT is moving up nicely, up around 200% recently.

I think Vik's made a lot of judgmental errors with his picks but they're not of the type or magnitude of having conflicted people like Grubman make millions by going out of their way to recommend stocks they knew were garbage.
willywilson 12/4/2012 | 10:01:26 PM
re: Cool Hand Vik Greenspan was absolutely right - Irrational Excuberence - Now quit whining about Analysts and start looking at your own behaviour, if you've been speculating in the stock market over the past couple of years, chances are that you lost money, and at the very least you have been partly responsible for driving the stock market to unrealistic and unsustainable levels. It's not just crap Analysts, it takes two to tango.


You have a point, but you shouldn't take it too far. Yes, people should lock their doors at night. But if they don't, that does not give the burglar the right to enter their homes and steal things.
let-there-be-light 12/4/2012 | 10:01:25 PM
re: Cool Hand Vik HA-HA-HA,

Very funny, LightReading!

You do so love to point fingers. A bit like the pot calling the kettle black.

Please re-write the entire article, but everywhere it says Vik Grover, replace with LightReading.

Now, that would be fun to read....
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