Wedbush Adding Analysts To Track Firms on the Rise.

MICHAEL Pachter, new director of research for downtown Los Angeles-based Wedbush Morgan Securities Inc., is ramping up in a bid to grab more investment banking business.

"We have 11 analysts now, and we are shooting for 20 by the end of next year," he says.

The push comes as business at the firm is mushrooming. Whereas Wedbush issued about 20 research reports in 1999, this year it expects to do 80 to 90. In terms of total companies covered, Wedbush followed 20 last year but is covering 54 now and aiming for 200 by the end of next year.

More importantly, its researchers are covering companies that aren't getting a great deal of coverage at the moment but may be of interest to the financial community. Pachter says there isn't much sense in adding to the research on firms like IBM or Amazon.com, but many mid-caps are crying out for coverage.

To be sure, brokerages need excellent on-staff research to earn investment banking business and the trading action of large institutions.

"Companies today take their investment banking business and allocate it among the brokerages providing them coverage," said Pachter. "And the institutions (trade) through the brokerages that give them timely and useful research."

In particular, analysts at Wedbush are being deployed in the Internet sector, but in a way that Pachter believes, is more sensible than the approach being taken by other brokerages. "The other brokerages have an Internet analyst who covers Yahoo, eBay and Amazon.com, but those are three entirely different kinds of businesses," he says. "That's like having one analyst cover Boeing and Federal Express because they both involve airplanes."

Instead, Pachter has split up the Internet functionally, so that one analyst covers Web sites that are B2B "vertical exchanges," such as Syquest Technology Inc., in which buyers and sellers of laboratory products find each other.

A second Internet "space" includes technologies that enable the wireless Internet. And the third area focuses on companies that help Internet content delivery, such as Akamai Technologies Inc., which sets up mirror Web sites nationwide so surfers trying to access a crowded Web site are directed to a nearby mirror site if needed.

Pachter is willing, even eager, to hire analysts from other professions and off of Wall Street. Real-life experiences count for something, says Pachter, who himself came from "the outside," having once been oil giant Arco' s corporate finance top gun and chief strategic officer.

An example of one unusual Pachter hire is former electrical engineer Keay Nakae, an analyst covering medical devices.

A native of Hawaii, the 40-year-old Nakae grew weary of engineering, went on to earn an MBA, and then work as a commodities trader while also winning several world titles in "ultimate Frisbee" competitions. "He's almost as good a researcher as he is with a Frisbee," Pachter says.

Sagging Shares

Investors could be excused for thinking the name of Encino-based E4L Inc. (which stands for "everything for less") also applies to the stock price of the informercial maker.

E4L shares in recent weeks have sagged into the penny stock range on the Big Board, after drifting relentlessly down from $8 a share last July.

Last year, the 320-employee company was touting its one-third ownership of online retailer BuyItNow.com. A synergy between Net retailing and informercials was expected to propel sales and profits to new highs, E4L Chairman Stephen Lehman said back then. In addition, the BuyItNow.com product line was strong in health and beauty products, which have done well in informercials in the past, Lehman said.

But consumers were slow to click their way to the Web site, and as a result, E4L didn't click on Wall Street, either.

For the fiscal year ended March 31, E4L reported a net loss of $35.9 million ($1.16 per share), compared to a net loss of $43.6 million ($1.70 per share) for fiscal 1999. Revenues were $241.1 million vs. $327.9 million.

Last week, Lehman still sounded confident. "Our stock has been hit, but we just got hit with all the dot-coms," he said.

E4L has a new strategy going forward. BuyItNow.com recently merged with online computer retailing outfit PCWonder.com. In response, E4L will now emphasize tech retailing. "Instead of health, fitness and beauty products, we will sell computers (on installment plans) for $19.95 a month," Lehman said.

As interactive television and the Internet continue to converge, E4L will be a leader in "couch commerce," according to Lehman. "We've been able to generate hundreds of millions in sales when people have to stop watching television and make a phone call," said Lehman, referring to 800 numbers that couch potatoes call to order products they see in TV informercials. "In the future they will be able to order with their remote controls."

Lehman said E4L has nearly turned the corner financially, showing a minute profit in the fourth quarter of fiscal 2000 as measured by "EBITDA," financialese for earnings before interest, taxes, depreciation and amortization.

In future quarters, E4L will likely flip back and forth in terms of profitability, as measured by EBITDA, said Lehman. But by next April, Lehman expects E4L to be "well-positioned" for profitability.

Muni Bonds

Yields on municipal bonds are getting almost somnolent, says Mickey Stern, founder of the muni-bond shop M.L. Stern & Co LLC in Beverly Hills.

"In the last two months, rates have come down about one-half percent," said Stern, meaning many munis are now offering less than 6 percent interest.

The widening federal surplus is one important factor. The supply of Treasury notes and bonds is decreasing, just as baby boomers are getting serious about saving and investing. And now, with the stock market going sideways in 2000 (and whacking tech investors), more investors are looking for safety.

The upshot? They want to buy Treasuries, and if not that, munis.

That means lower yields.

So what's the outlook?

With so much money on the sidelines -- invested in Treasuries and munis -- Stern, a 40-year vet of Wall Street, is a bit bullish about the stock market.

When will investors regain their confidence and take money out of munis and put it into stocks? "They (investors) are just waiting for some direction again," said Stern. "Then they will go back into the stock market."

Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.