Analyst aims his darts at inflated stocks
Boston Globe, Aug. 26, 1998, Page C1Relative unknown Mark Roberts moves markets - and makes enemies - with reports.
Edward Cohen, the chief executive of a specialty finance company from Philadelphia, let his exasperation show on a conference call with investors who were losing their shirts.
"The erroneous statements and simplistic analysis might have been corrected before it went out if they were acting in good faith," Cohen said as shares of Resource America Inc. were in the midst of a one-day, 30 percent plunge Monday.
The source of all the sudden agitation was a report distributed to a small list of investment management clients by Mark Roberts and his Off Wall Street Consulting Group in Cambridge.
Roberts is not well known outside a particular niche of the investing world that will pay more than $30,000 a year for his research. But he moves markets and makes enemies when his firm issues one of its reports, which specialize in identifying inflated stocks headed for trouble.
In the case of Resource America, Roberts had questioned the company's accounting policies and some business relationships.
The market, at least in the short- term, seemed to think the analysis might be on target. Resource America shares continued to trade at a wild pace yesterday and their price drifted even lower, despite a second conference call. It closed at 19 1/8, down 1 1/4.
"We've heard what they have to say [on the conference calls] and we don't see how anything has changed," Roberts said yesterday. "Obviously the stock market, the more it hears, the less it likes."
Cohen isn't the only executive to fire back at Off Wall Street Consulting after a tough report. The usual line of attack: The work is wrong and a tool of short-sellers trying to drive the price of a stock down.
Samsonite Corp. executive Thomas Sandler trashed Roberts in a January Barron's article, citing critical research dating to April 1997 when Samsonite stock traded at 46. But those same shares were priced just above 30 at the time of the article and finished yesterday at 7 1/2. Samsonite officials did not return a telephone call yesterday.
Executives at Pillotex Corp., a Dallas-based company that sells $1 billion a year in pillows and other bedroom furnishings, huffed about inaccuracies when the company was slammed by Off Wall Street Consulting in June. The stock has fallen from 45 to 32 1/8 since, though part of the decline may be attributable to the stock market's summer swoon.
Early in 1997 it was Miller Industries, an Atlanta-based towing company with a stock that traded near 23 at its peak. Several research firms questioned that value and Roberts wrote that it would be fairly valued at about 10. The stock was priced at 6 1/8 yesterday.
Calls to Pillotex and Miller Industries weren't returned yesterday.
Roberts doesn't disclose much about his customers. But he said he has 30 to 40, one-third being mutual fund managers and the rest operating hedge funds.
Roberts said customers are both stock owners and short-sellers, who bet the price of a stock will fall (hedge funds commonly own and short stocks within their portfolios). But the research, identifying investments that are overvalued, is clearly a tool best suited for short-sellers.
"He is one of our sources," said Joseph McNay of Essex Investment Management in Boston, which invests $4.5 billion, including about $400 million in hedge funds.
"It's very hard to find [research] companies that do good short-selling work. Almost none is willing to put their name on something that is negative. Management shuts you out; they hate short-sellers. So it's not a popular business," said McNay, whose son, Colin, once worked at Off Wall Street Consulting.
Roberts insists he isn't bothered by the criticism, but the reaction this week to his report on Resource America was especially loud.
"This is unusual because the [stock price] reaction was so severe," he said. "Either we're going to be right or wrong and time will tell. In our case, we're right about 80 percent of the time."
And the other 20 percent? Roberts said a recommended short of Safeskin Corp., a maker of disposable latex gloves, would have resulted in a loss of about 130 percent.
But his all-time bad call was a recommended short of America Online Inc. Following that advice, he said, would have cost about 380 percent of an investment by the time he changed his mind about the recommendation at the end of last year.
Roberts, 52, hardly has the kind of background that would suggest he makes a living throwing darts at companies and their stocks. He studied French literature at Swarthmore College and later as a graduate student at the University of California at Berkeley. Roberts came home to Massachusetts to work in the family business, a steel service center in Everett called Atlantic Steel. He later ran another steel business, sold it, and helped build a computer software retail chain in the early 1980s.
Roberts became involved with investing in New York and later took a job as an analyst, then in his 40s, at Fidelity Investments' institutional brokerage unit.
He went out on his own in 1990 and quickly made a name for himself with an early report: "TCBY is in Deep Yogurt." The report criticized TCBY Enterprises Inc., whose stock plunged to 5 from about 20 in less than a year.
Today, Off Wall Street Consulting has four other analysts working from an office near Harvard Square, looking for stock bubbles to burst.
By Steve Bailey and Steven Syre, Globe Staff