Meredith A. Whitney, the bank analyst who jumped from obscurity to celebrity by correctly predicting that deteriorating finances would force Citigroup (C)to cut its dividend in 2007, is having less success divining stock market winners and losers. Since Whitney founded her own firm last year, about two-thirds of her picks have fared worse than market indexes. Missed calls include Visa (V), the payments network that fell 14 percent from May 4, when Whitney named it her "single best buy," through Oct. 5, and credit-card issuer Capital One Financial (COF), which tripled after she urged clients to sell.
Whitney's recommendations to sell bank stocks propelled her to fame during the financial crisis. Time magazine dubbed her one of the world's most influential people, Fortune put her on its list of the 50 Most Powerful Women in Business, and Michael Lewis's best-seller, The Big Short, chronicled her role in the financial crisis.
"She can move the markets. Her opinion is extremely worthwhile, but she does not bat 1,000—nobody does," says Matthew D. McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor, which oversees $2.7 billion. Whitney, 40, who left Oppenheimer (OPY) in February 2009 to found Meredith Whitney Advisory Group, didn't respond to requests for comment.
Bank analysts struggled to pick winners and losers after the credit crisis forced Wall Street to reevaluate risk, unwind government bailouts, and adjust to the biggest regulatory overhaul since the 1930s. Even top Wall Street firms and individual stock pickers failed to predict the fall and rise of most financial stocks, according to rankings in the November 2010 issue of Bloomberg Markets magazine. Goldman Sachs (GS) won the No. 1 rank by making 30 accurate calls on the 79 financial stocks its analysts follow. KBW (KBW) analysts, including Sanjay Sakhrani, ranked second. Whitney's firm wasn't ranked in the top 20.
Whitney made six accurate and 13 inaccurate picks through Sept. 30, based on annualized returns including dividends on her 19 recommendations, when compared with the performance of the S&P 500-stock index. She was right seven times and wrong 12 when compared with the 81-company S&P 500 Financials Index. Correct predictions are stocks rated "buy" that outperformed the indexes or a "sell" that underperformed. A rating of "hold" or "neutral" is right if the stock underperformed or matched the indexes, unless it was upgraded.
Whitney's first stock call as her own boss came on Mar. 4, 2009, when she rated Goldman Sachs "neutral," which investors may interpret as a signal to sell. The stock surged 75 percent in about four months. Other misses came on Apr. 1, 2009, about a month after stocks had begun to rebound, with a wrong-way "sell" call on McLean (Va.)-based Capital One and a "neutral" rating for American Express. Capital One more than tripled through June 14 of this year. After a Whitney upgrade to "hold," it underperformed the index by 26 points. New York-based AmEx, the biggest credit-card issuer by purchases, almost tripled and was last year's top performer in the Dow Jones industrial average.
Whitney's correct calls include "neutral" or "hold" ratings on Morgan Stanley, JPMorgan Chase, U.S. Bancorp, and Pittsburgh-based PNC Financial Services Group. Morgan Stanley has returned 3.5 percent on an annualized basis and JPMorgan 23 percent since she started coverage on the stocks on Apr. 1, 2009, vs. 28 percent for the S&P 500.
Other analysts have found mainstream celebrity fleeting. Abby Joseph Cohen, senior investment strategist at Goldman Sachs, made her reputation with a bullish view of the stock market before the S&P 500 sank for three straight years beginning in 2000. Morgan Stanley's Mary Meeker, dubbed the "Queen of the Net" by Barron's magazine in 1998, receded from the spotlight after Internet stocks imploded.
Institutional investors don't value analysts solely for the stock picks, McCormick says: "What they want is consistency, logic" in their evaluations of companies. And Whitney's fortunes could improve. "The calls that she's making may not be the best calls right now," says McCormick. "But a year from now, who knows?"
The bottom line: After making her name on the strength of one great call, Whitney has compiled a mixed record, at best, as a stock picker.