Whom Can You Trust?

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A used-car salesman knows things about the vehicle you're eyeing that would make you run from his lot — and he isn't sharing. There are only two ways to beat him: avoid him entirely or bring your own mechanic to look under the hood. The same may be said of Wall Street analysts. Best to ignore them because of what they know and won't tell. Our deepest suspicions were confirmed in recent weeks as New York attorney general Eliot Spitzer went public with private e-mails he had subpoenaed from Merrill Lynch. Those messages told a story very different from the one Merrill was telling its chumps, er, brokerage clients. Several analysts privately described as "horrible," "a piece of junk" and a "powder keg" stocks that they had publicly urged investors to buy — under pressure to help Merrill win investment-banking business from the firms behind those stocks.

With Spitzer and, belatedly, the Securities and Exchange Commission pressing for reforms, analysts' opinions may again mean something someday. In the trove of e-mails that Spitzer uncovered are hints of revolt among analysts who would welcome an environment in which they were encouraged to put the client first. But that's for later. For now, investors should seek research outside the big brokerages — including among the analysts who have fled them.

Eight top analysts left Legg Mason last June to found Precursor Group, based in Washington. Led by former ING Barings ceo Michael Petrycki, another group of analysts broke away last May to form Fulcrum Global Partners, based in New York City. They join well-established Sanford C. Bernstein among the boutique firms selling stock research unfettered by investment-banking concerns. Individual investors generally can't get research from these firms, which are paid in commissions from hedge funds or mutual funds that act on the firms' recommendations. But select, full research reports are available at prices as high as several thousand dollars, and you can get pieces of this research at multexinvestor.com, where costs range from $3 to $1,000 for each summary report. More extensive research is available there and at firstcall.com for big investors with trading accounts at several firms. Such investors can also see things such as analysts' morning-call updates.

Another option is to look for free research from firms whose investment-banking operations are relatively small and whose reputation for integrity is relatively strong. These include Keefe Bruyette Woods for banking stocks, Leerink Swan for biotech, Soundview for tech, Fox Pitt Kelton for financial services and Green Street Advisors for real estate. Prudential Securities is moving to join this group by cutting its investment-banking staff and putting more emphasis on unbiased research. Stock calls from these firms are more reliable than from the biggest brokerages, but they still must be vetted for conflicts and used in concert with other sources.

The best widely available research is through Value Line and Standard & Poor's. As its name implies, Value Line seeks to identify undervalued stocks among its universe of 1,700. The service costs $598 a year but is available free at many libraries. S&P reports on the financial health of some 6,000 companies through a daily service that costs thousands of dollars a year. But for $299 you can subscribe to the weekly S&P Outlook. Morningstar, best known for its fund analysis, also covers stocks. A subscription costs $89 a year ($109 online). Carol Levenson's Gimme Credit, a newsletter based in Chicago, focuses on bonds but offers first-rate analysis that stock investors use too. It costs $18,000 a year. There's also good research available at sites like cbs.marketwatch.com, thomsonfn.com, cnbc.com, quicken.com, smartmoney.com and www.wallstreetcity. com. These websites require a little more of your own analysis. But if you're going to venture onto this lot, you'd better be ready to kick some tires.