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Beware: It's Wall Street's marketing season
Brokerages are hosting their fall investment conferences, which are all about creating buzz even when there's no real news. Don't get carried away.
By Jim Jubak
On the morning of Sept. 4, Goldman Sachs upgraded Cisco Systems (CSCO, news, msgs) to "outperform" from "in-line" and raised its earnings estimate for the fiscal year that ends in July 2005 to 76 cents a share from 73 cents. The call drove Cisco's stock up almost 2% on the day and ignited the current post-Labor Day rally in technology stocks.
The reason for the upgrade: Cisco CEO John Chambers had told a group of investors assembled for a technology conference sponsored by S.G. Cowen that August sales were a little bit above his expectation.
Welcome to Wall Streets fall marketing season.
Beginning in the days just after Labor Day and stretching into early November at investment conference after investment conference, chief executives from technology, biotech, financial services, retailing and even the oil and gas industries deliver the latest positive news on their companies to ballrooms of analysts and institutional investors.
The sponsors of these investment conferences? Wall Street giants such as Lehman Brothers (LEH, news, msgs), Merrill Lynch (MER, news, msgs), Citigroup (C, news, msgs) and Credit Suisse First Boston that make their money selling the stocks and bonds of these companies to investors through an army of brokers.
Sometimes these investment conferences generate real news. For instance, Cisco's announcement is an important data point because there's so much uncertainty about when capital spending will pick up.
Marketing tools
But these conferences are important marketing tools for Wall Street investment bankers who want to demonstrate that theyll provide quality support to a companys stock after any potential deal. So the banks strive to fill their conference agendas with the names of sector superstars.
That can fill up heavy hitters' dance cards quickly. IBM (IBM, news, msgs) was invited to the CSFB software conference on Sept. 3 and the Smith Barney Citigroup technology conference on Sept. 4. Cisco presented at the S.G. Cowen conference and got invited to the Banc of America investment conference on Sept. 16. Yahoo! (YHOO, news, msgs) was lined up for the Merrill media and entertainment conference on Sept. 9 and the Banc of America conference.
Its unusual if the analyst who covers a Cisco, an IBM or a Yahoo! at the sponsoring investment bank doesnt follow up the conference with a new research report on the company. The report doesnt always entail an upgrade but the report alone puts the company in front of investors.
Its even better, of course, when the conference does go hand in hand with an upgrade, such as CSFB's upgrade of IBM to "outperform" from "neutral" on Sept. 8. IBM spoke at the firm's technology conference on Sept. 3.
When an investment bank is competing for a companys investment banking business, the politics of conferences and analyst reports can get quite complicated. So, for example, the week before Merrills media and entertainment conference set for Sept. 9, the brokerage firm upgraded Lamar Advertising (LAMR, news, msgs) and several other radio advertising stocks.
Head to head
The Merrill conference went head to head with a Morgan Stanley media conference that also opened Sept. 9. The two companies are intense rivals in the investment banking business, and each would certainly love to upstage the other.
Lamar's CEO was set to speak at the Morgan Stanley conference and Morgan Stanley was the co-manager of the company's $250 million convertible note offering in June. Merrill wasnt an underwriter on that deal.
Does this mean I think the Merrill analyst fudged his opinion on Lamar? In this case, no. I like the stock as well and calculate just about the same $42 a share 12-month target price as he does.
But that doesnt mean Im excited by this or any other Wall Street call now. I also wont get too carried away if Morgan Stanley upgrades the stock.
The timing of all these upgrades and earnings estimate increases has more to do with Wall Street's conference season than any real news about business prospects in technology, media, financial services or any other sector. All these conferences can create the impression of news and of real movement in company prospects. But creating a buzz that leads to investor excitement is the whole point of this seasonal market exercise, which is why its so important now to try to buy the steak and not the sizzle.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. The Wednesday edition stems from Jim's appearance on CNBCs Business Center most Wednesday nights at approximately 5:45 p.m. ET.
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Lamar Advertising. He does not own short positions in any stock mentioned in this column.
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