Your Next Great Stock: How to Screen the Market for Tomorrow's Top Performers

Chapter 17. The Bold Is Beautiful Screen

"I can't believe what a POS that thing is, "wrote one Wall Street analyst in an e-mail in December 2000."POS" stands for point of sale in the retail business, but the analyst wasn't writing about retail. He was writing about an Internet marketing stock, and his "POS" stood for "piece of sh*t." The assessment was an accurate one. The company, Lifeminders, has since dissolved for lack of profits. Its former shareholders lost all of the money they invested.

The analyst, Henry Blodget of Merrill Lynch, might've won praise from investors for his tough but honest warning. The problem is, he didn't send this message to investors. He sent it to a colleague at his firm, while at the same time publishing research reports recommending the rest of us "accumulate" shares. This wasn't an isolated incident. Six months prior, he had called Excite@Home, a now defunct Internet portal, "such a piece of crap!" in an internal e-mail, while publishing "buy" recommendations on the stock.

Analysts have a vested interest in making accurate recommendations. Why would one of them praise a stock in public and bash it in private? Blame the conflict of interest facing analysts who work for firms that also provide investment banking services to companies.

Investment banking services include helping companies issue new shares to investors in order to raise money. The fees for such services are significant. A company seeking to issue new shares would naturally prefer to do ...