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Friday, September 5, 2008

Couple of Downgrades of Interest

Two stocks that could be going lower if market/financials going to tank big again.

MER - Goldman Sachs downgrade of MER (26.21 ) -Update : As mentioned at 6:35, Merrill Lynch was downgraded by Goldman Sachs to Sell. The analyst thinks that the co will likely incur fresh write-downs, in addition to those assumed after its recent sale of repackaged debt to Lone Star Funds. Analyst William Tanona also widened his third-quarter loss forecast for the world's largest brokerage, while adding the stock to his Americas conviction sell list. Tanona said Merrill's stock currently trades at the highest price to book multiple in his large-cap brokerage universe, despite having some of the most significant exposures to troubled assets like collateralized debt obligations, mortgages and leveraged loans. "We expect Merrill's multiple to compress over the coming weeks and months, as third-quarter earnings will mark the fifth consecutive quarterly loss for the company, and its prospects for fourth quarter of 2008 are not promising enough to warrant this level of a premium to book value," he wrote in a note dated September 4 to clients. Tanona widened his third-quarter loss forecast for Merrill to $5.75 a share from $4.75, citing expectations of higher gross write-downs, and higher compensation expense. He also widened his 2008 loss estimate to $11.55 a share from $10.25. The analyst cut his six-month price target on the stock to $22 from $28.50.

LM - Legg Mason: Downgrade details (47.37 ) : As mentioned at 6:58, Credit Suisse downgraded LM to Underperform from Neutral Following the restructuring of some of the large structured investment vehicles (SIVs) and a rebound in the LM share price. Firm says the stock's positives (attractive valuation, operating margin opportunity, potential for M&A) are offset a number of risks. Furthermore, firm adds that over the next year, they expect that LM will (1) miss EPS ests (or face negative revisions) and (2) experience the highest level of net redemptions as a percentage of AuM among the public managers.

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