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Are Wall Street analysts really worth listening to anymore? Right now investment banks and brokerages are struggling to put a value on in-house research. And their conclusions could lead to a radical change in the way they do business in the near future (see Wall Street On the Run). But for the average investor, the question is this: Should I pay attention when analysts pick stocks? All too often, the answer is no.

Year after year, the evidence shows, most analysts fail at their prime objective: making money for their clients. Yes, they churn out reports on companies and industries, full of crunched numbers and cogent perspective. But when it comes to actually making timely stock picks -- which is what, ostensibly, they are paid to do -- analysts are flat-out bad. In 2003, the S&P 500 rose 26 percent, and the Nasdaq gained 50 percent. By contrast, the portfolio of the median Wall Street analyst, as judged by the recommendations to buy, sell, or hold the stocks that he covers, gained just 11 percent before commissions. In only two of 81 market subsectors would an investor actually have done better by listening to the analysts than by just buying and holding the same group of stocks. Think about that for a moment: As 2003 began, stock valuations were at their lowest level in years, and corporate profits were set to rebound. Yet the same analysts who said to buy at the top of the market in 2000 were telling investors to exercise extreme caution when handling equities. What more proof do we need that analysts, almost as a rule, get it wrong?

Sometimes, however, it's the rule that draws into sharp relief the exceptional. In the five years that we have been compiling our list of the best-performing analysts, it has become clear that certain researchers stand above their peers as stock pickers. Their names are always near the top of the rankings. Indeed, this year's lineup is dotted with repeat performers, such as Colin Devine, who covers insurance for Smith Barney, and Richard Chu, a computer analyst at S.G. Cowen. Their styles vary from contemplative to combative. Some work in regional brokerages and others at the white-shoe investment houses in the very heart of Wall Street. What they all have in common is a skill for spotting opportunities their peers routinely overlook. They have the knack.

For help in picking our 2004 All-Star Analyst team, we turned for the fifth year in a row to Zacks Investment Research, a leading collector of Wall Street information with a database that tracks the moves of nearly 3,000 analysts. Zacks scored every upgrade and downgrade and came up with rankings for the analysts in each market sector. (Sells were counted as short positions, and holds were calculated as cash positions, with performance tied to short-term government bonds.) We looked at performance over the past one-year and three-year periods to find consistent moneymakers. We also reviewed their research reports and interviewed portfolio managers to get a handle on their insight and candor. In the end we found ten All-Stars whose research is worth plenty.

To put their skills to use, we asked each analyst to give us his best idea for the coming year. (Our analysts' picks from last year are up an average of 32 percent, vs. the S&P 500's 21 percent rise.) The result is a diverse portfolio ranging from pure value plays such as Prudential Financial to more speculative choices such as Sun Microsystems, an ailing tech giant whose future is uncertain. Here, the top picks from the 2004 FORTUNE All-Stars.

-- David Rynecki

All-Star Firm	Stock	Price Per Share 5/26/04	52-week low/high	Trailing P/E
Tom Carroll Legg Mason	Anthem	$88	$65-96	14
Why they like it: About to become the nation's largest managed-care provider, Anthem has a knack for cutting costs.
Chris Blum Edward Jones	Bank of America	$83	$72-85	11
Why they like it: No, it's not Citi. But BofA has better profit margins and a CEO who knows what it takes to manage a big merger.
Joseph Campbell Lehman Brothers	EADS	$24	$11-26	20
Why they like it: The parent of Airbus is bigger and cheaper than rival Boeing. Look for the new jumbo jetliner to bolster market share.
Stephen Girsky Morgan Stanley	Lear Corp.	$58	$39-69	10
Why they like it: It's what's on the inside that counts. This top auto-interior supplier will thrive even if automakers struggle.
Michael Dudas Bear Stearns	Newmont Mining	$40	$29-50	35
Why they like it: Newmont should benefit as inflation pushes gold prices higher. It also has $1.5 billion in cash for exploration.
Colin Devine Smith Barney	Prudential Financial	$44	$33-48	18
Why they like it: With 77 million baby-boomers nearing retirement, Pru has been adding to its 401(k) and annuity businesses.
Jason Kantor W.R. Hambrecht	Seattle Genetics	$7	$7-11	N/A
Why they like it: Seattle Genetics has a cutting-edge technology for attacking cancer. Can it turn potential into profits?
Richard Chu S.G. Cowen	Sun Microsystems	$4	$3-6	N/A
Why they like it: There are six billion reasons Sun won't go belly-up—yet. Will that be enough to battle IBM and Dell?
Paul Puryear Raymond James	Toll Brothers	$41	$26-48	12
Why they like it: Mortgage rates are on the rise. But this high-end homebuilder has wealthy customers and a big backlog.
Andrew McQuilling UBS	Weight Watchers	$35	$32-47	25
Why they like it: With 13% compounded revenue growth over 30 years, Weight Watchers is strong enough to outlast Atkins.