The Analysts: Keeping the Bulls Running; Can investors get an honest stock tip on (or off) Wall Street?(Cover Story)

Byline: Adam Piore

Back in 1999, Tyco chief executive L. Dennis Kozlowski went on TV to call for an investigation of "false, unfounded and malicious rumors" of accounting irregularities at his firm, and to attack the independent analyst who had dared raise these charges in public. "We don't know this David Tice," Kozlowski said. "He has never spoken to anyone at Tyco, and we don't know who he is or what he does." Wall Street took Kozlowski's side. Now Kozlowski is on trial for the biggest accounting fraud in history, and independent analysts like Tice are a rising force on Wall Street.

In-house investment bank analysts are in retreat. Last April, 10 big Wall Street investment banks set aside $450 million for "independent research" to settle charges that their own analysts were disingenuously touting companies in order to attract banking business. Since 2001, big banks have slashed in-house research staffs by as much as a quarter. HSBC just announced it would stop picking stocks altogether, declaring the old research model "broken." Meanwhile, the number of independent research firms has risen from 250 to more than 400, says Scott Cleland, chairman of the Investorside Research Association. "We are the natural outgrowth of the bubble bursting," Cleland says.

So is it now easier to find a straight tip? The category of independent analysis is ill defined, creating new problems. In an ongoing study, Virginia Tech professor Michael Cliff has found almost no difference between the accuracy of independent picks and those of analysts from ...