November 2019

Disruption is inevitable - learn how these Wall Street analysts stay ahead

Every year, thousands of investment professionals (nearly 4,000 to be exact) vote to determine the top equity research analysts — and firms — on Wall Street. This year RBC Capital Markets had their best performance ever, placing #7, with 20 ranked analysts across 22 sectors. Following on our initial conversation with six of our ranked analysts, we sat down with another three RBC analysts to discuss the changes impacting the industries they cover – and how they’re adapting to disruption in their own industry.

Gerald Cassidy, Head of US Equity Strategy

 

Best call you’ve ever made?

Issuing a sell rating on the U.S. banks in January 2007 and going back to a buy rating on the group in May 2009.

Worst call you’ve ever made?

Telling our clients in January 2018 that bank M&A activity was going to accelerate in 2018 with big deals.  It did not happen.

How is the role of a stock analyst changing?

The role of a stock analyst is to make clients’ money which not changed in the past 30 years.  The delivery channels and some of the regulations have changed but the basic role has not changed.

If a client needed to know one thing about your area of coverage, what would you tell them?

The U.S. banking industry is a product of the economy and as long as the economy is expanding and growing banks stocks should do well over the long run. If the economy looks to be heading into a recession, sell your bank stocks.

How is the industry you cover being disrupted?

The delivery of bank products and the payments channel have changed but the banks have responded very effectively with leading edge technology and are very competitive.

In your view, what is RBC doing differently than other shops on the street?

RBC allows the research analysts to live in remote locations which enables the analysts to balance their work lives and personal lives more effectively.

Daniel Perlin, Managing Director/Co-Head Loan Capital Market

 

Best call you’ve ever made?

Not backing away from the networks (Visa & Mastercard) over the years through regulation, litigation, and general market concerns over technology disintermediation, as these powerful compounding secular growers represent two of the most durable business models in the world.

Worst call you’ve ever made?

Generally speaking, when I lead with valuation either for an upgrade or downgrade, the end result is never ideal, yes valuation matters, but the totality of the call must be greater than that.

How is the role of a stock analyst changing?

The speed with which information is both disseminated and expected to be analyzed has accelerated many times over in the last 20 years. This is where experience and perspective come into play.

If a client needed to know one thing about your area of coverage, what would you tell them?

This is not a homogeneous group of stocks, so you need to focus on all the nuances of each story and not make the mistake of generalizing across the industry.

How is the industry you cover being disrupted?

FinTech by its nature is the convergence of multiple industries, think financial services, software, and the internet. As a result, we end up with multiple partnerships across all three industry groups, like Uber creating banking like functions for its drivers to tap into the underbanked, Apple partnering with Goldman Sachs to create a credit card, and PayPal and Square creating Apps that tie to debit card accounts to expand their usability.

In your view, what is RBC doing differently than other shops on the street?

I see three things that RBC is doing right: 1) embracing new technology, such as RBC Elements (using data analytics and AI to help differentiate and create proprietary products), 2) iterating – as the industry is evolving RBC is not scared to change with it, and 3) culture – RBC is in rarified air when it comes to actually living up to its stated values, which is directly illustrated in the caliber of my colleagues.

Kennen MacKay, Managing Director, Co-Head of US Biotechnology Equity Research

 

Best call you’ve ever made?

Being the SGEN Bull. Perhaps not by absolute return, but certainly for controversy & client mindshare. We recognized SGEN as leaders in developing a class of oncology drugs we saw as increasingly important. This let us draft a Bull thesis for SGEN to mature from a single-product company in what the Street saw a niche field of medicine into a global oncology leader with several blockbuster products. A blueprint we still argue could enable SGEN to emerge as the next $20Bn+ large-cap biotech, a feat only accomplished by 7 companies.

Worst call you’ve ever made?

Embarrassingly too many to count. More than I care to count anyway. Under 10% of drugs that enter clinical trials ever achieve FDA approval. That leaves a lot of room for error, especially in small & mid-cap biotech companies where investments can be highly binary and speculative in nature based on still emerging science. Silver lining is that almost every drug failure is a lesson learned with experience helping us avoid future drug development pitfalls.

How is the role of a stock analyst changing?

It is increasingly service-oriented. I once had a client tell me there were two types of analysts he leaned on: the clockmakers and the guys that told him what time it was. Clockmakers are analysts who are experts. The client utilized them to ramp-up and understand a new sector or company. The time-tellers are analysts who have a great sense of where expectations are to gauge a stock’s setup. Increasingly I see client servicing as a third “brand” of analyst as the buy-side outsources some bandwidth to trusted analyst teams where bespoke requests range from data-mining to leverage in-house “big data” tools.

If a client needed to know one thing about your area of coverage, what would you tell them?

I hope you have an appetite for volatility and risk: there’s more drama in today’s biotech market than an episode of reality TV.

How is the industry you cover being disrupted?

I see the emergence of a new type of generic drugs called “biosimilars” that are just launching in the US adding overhangs to many of the more mature biotech franchises out there. This is shifting focus into new classes of medicine/science where patent lifespans could span several decades of protection.

In your view, what is RBC doing differently than other shops on the street?

The people. There’s more transparency between verticals and higher accountability. This spurs communication/collaboration between research, trading, and sales and aligns all of Capital Markets with our client’s needs. No one here is just a cog in a machine.