IT'S A TOUGH TIME

to be a Wall Street analyst. A few years ago, analysts were the rock stars of the financial world, with Main Street investors hanging on their every word. Now, the estimated 15,000 research analysts working for U.S. brokerage firms might actually be less popular than journalists or lawyers, if that's possible.

Their fall from grace isn't surprising, given the failure of analysts to foresee the bursting of the dot-com bubble, the broader tech wreck and the collapse of Enron. Indeed, more and more investors are coming to view brokerage analysts as nothing more than well-paid apologists or corporate shills for the companies whose stocks they follow. Last week's revelations that Henry Blodget Merrill Lynch's former Internet guru privately ridiculed some of the Strong Buy recommendations he'd issued on stocks cast even more doubt on Wall Street's ability to deliver objective stock research.

Unfortunately, unlike a big mutual fund that can hire its own team of analysts or pay top dollar for reports prepared by an independent research firm, individual investors don't have much choice when it comes to stock research. They're pretty much stuck with the reports produced by the analysts working at big Wall Street firms like Merrill, Morgan Stanley Dean Witter, Goldman Sachs Group and Credit Suisse First Boston. In some cases, brokerage customers even have to pay extra for access to these reports.

So what's a do-it-yourself investor who's seeking a little guidance to do? To answer that question, we talked to a number of Wall Street money managers and financial planners to see how they use brokerage-based research in making investment decisions. Not surprisingly, some say they never look at the stuff and advise individual investors to do likewise. They say analysts, more often than not, will hold back criticism of companies with which their employer has a significant investment-banking relationship. "I figure if chief executives are going to lie, there is nothing to stop the analysts,'' says W. Ben Utley, a financial planner from Portland, Ore. Utley says he can get much of the information he needs to make investing decisions by listening to conference calls, reading news articles and perusing annual reports.

But others say that if investors can block out all the hyperbole and the opinions analysts voice about stocks, they can find some useful information in brokerage research reports. Here are some tips.

The one thing all the market professionals we talked to agreed on was this: The two most useless pieces of information in analyst reports are stock ratings and price targets. While it's true that stocks often spike on the news that a well-known analyst has raised a price target, the experts say these stock movements are mainly of interest to short-term traders. Longer-term investors, they say, would be wise to pay no attention. The process of setting a price target and a stock recommendation is highly subjective, and likely to reflect an analyst's particular bias. "Any recommendation on a stock ends up being a judgment call, and who knows what influences that judgment?'' says Timothy Ghriskey, a money manager with Ghriskey Capital.

Ignore Ratings and Price Targets

In 1999, at the height of the Internet stock frenzy, Blodget logged some 25 interviews with broadcast networks, according to the New York Attorney General's office. That's more airtime than some big-name Hollywood stars get in a given year. Experts tend to prefer the work of analysts who avoid the limelight and let their research speak for itself. "No one should listen to one analyst and assume he has all the answers,'' says Harold Schroeder, a money manager with Carlson Capital. Of course, the media love analysts who make themselves available for comment. But lately, we've increasingly been holding their feet to the fire. SmartMoney.com is now disclosing in its stories whether or not analysts own the stock they're discussing, and whether the analyst's bank has a relationship with the company in question. CNBC, as a general rule, is now doing the same.

Beware the Windbags

The experts we talked with say they don't read research reports to learn what stocks an analyst may like in a particular sector. Rather, they're more interested in information about industry trends. Analysts can be good information gatherers and are usually fairly knowledgeable about the sectors they cover. And while an analyst's specific stock picks can be influenced by investment-banking work, a research report that includes a discussion of an industry's prospects usually reflects a more objective and sober analysis. Harold Evensky, a Boca Raton, Fla., financial planner, says he finds information on market and industry trends helpful in deciding which sectors to advise his clients to invest their money in. Ghriskey says investors should "use the analyst for information but not for his opinion."

Focus on Industry Trends

Experts caution investors never to make a decision about buying a stock based on the research of a single analyst even a well-regarded one. "If you are told to have open-heart surgery, I would hope you would get a second opinion and the same is true with analysts,'' says Schroeder. Similarly, Ghriskey says: "There are thousands of opinions on a stock. Who knows which one is the best?"

Always Get a Second Opinion

Analysts were nearly unanimous in their bullishness on Enron until just before the company filed for bankruptcy. But there were a few nay-sayers who started warning of potential trouble as early as last summer. The experts we talked to say they pay particular attention to brokerage analysts who break from the pack and offer a different opinion on a stock either positive or negative. Says Ghriskey: "We'll use the Street [research] for information, especially contrary opinions.'' Michael Stead, a portfolio manager with Wells Capital Management, says the only research reports he reads are ones from brokerage analysts "way out in left field. I want to know why.''

Heed Contrary Opinions

Right now, brokerages aren't required to disclose potential conflicts of interest between the investment-banking work they do for a company and the research reports they issue on that company's stock. But by this summer, there's a good chance such disclosures will become the norm for the securities industry. The Securities and Exchange Commission is considering a new rule that would require analysts to reveal whether they own shares in a stock they cover and what, if any, investment-banking work the analyst's firm does for that company. Merrill will be one of the first to do so though not by choice. It has agreed to provide greater disclosure about its investment-banking deals as part of a partial settlement with the New York State Attorney General's office, which has been investigating analyst conflicts of interest on Wall Street.

Read the Warning Labels

While some think merely disclosing conflicts is a poor substitute for eliminating them, the proposal's supporters say the measure will at least alert investors to a possible explanation for an analyst's bullishness on a particular stock. Gary Schatsky, former chairman of the National Association of Personal Financial Advisors and president of ObjectiveAdvice Group, a New York financial consulting firm, says "disclosure is the lowest form of consumer protection, but at least it's something.''