Merrill Lynch (MER)

Positives for MER would be its Wealth Management division. 50% of its revenues are generated from this segment. Its stake in Blackrock also makes it attractive.

Notwithstanding the recent losses during the sub-prime crisis, Merrill Lynch is based on strong fundamentals.The beating that Merrill's stock price took following the sub-prime crisis makes sure that the stock is available at a bargain.

The move towards annuitization of revenues through fee-based products instead of commissioned-based services is creating strong profit margins less subject to the market’s volatility.

Merrill's continued emphasis on cost containment through out the last economic boom leaves it well positioned to deal with a cooling economy.

Merrill may see substantial value creation from the BlackRock venture.

Merrill Lynch's acquisitions of subprime lender First Franklin and private bank First Republic have triggered talk of overpayment and increased exposure to the ailing subprime mortgage industry. Since the beginning of 2007, Merrill's stock is down 17%, reflecting investors faltering confidence upon reading of these events. What people aren't reading are the cold, hard facts about Merrill's operations. Merrill Lynch is a solid company with strong performance metrics. Its revenue is showing accelerating growth, with five-, three-, and one-year growth rates of 12%, 35%, and 43.5%, respectively. Q2 2007 profits rose 30% from the same quarter in 2006, despite the subprime bust. Merrill's price/earnings ratio is currently at 7.94x earnings, compared to an industry average of 20.66x; of its main competitors, only Morgan Stanley (MS) has a lower PE ratio of 7.8x. This indicates an undervaluation of Merrill's stock, which savvy investors could take advantage of. Most of the talk of subprime exposure is just hype; a 17% drop in Merrill's stock price since the beginning of 2007 is more than enough to discount any exposure to the subprime fallout. Though Merrill's stock price may continue to decline for the meantime, it will eventually rebound as the firm's strong performance calms investors' fears.

Merrill Lynch's acquisitions of subprime lender First Franklin and private bank First Republic have triggered talk of overpayment and increased exposure to the ailing subprime mortgage industry. Since the beginning of 2007, Merrill's stock is down 17%, reflecting investors faltering confidence upon reading of these events. What people aren't reading are the cold, hard facts about Merrill's operations. Merrill Lynch is a solid company with strong performance metrics. Its revenue is showing accelerating growth, with five-, three-, and one-year growth rates of 12%, 35%, and 43.5%, respectively. Q2 2007 profits rose 30% from the same quarter in 2006, despite the subprime bust. Merrill's price/earnings ratio is currently at 7.94x earnings, compared to an industry average of 20.66x; of its main competitors, only Morgan Stanley (MS) has a lower PE ratio of 7.8x. This indicates an undervaluation of Merrill's stock, which savvy investors could take advantage of. Most of the talk of subprime exposure is just hype; a 17% drop in Merrill's stock price since the beginning of 2007 is more than enough to discount any exposure to the subprime fallout. Though Merrill's stock price may continue to decline for the meantime, it will eventually rebound as the firm's strong performance calms investors' fears.