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Merrill Lynch & Co., Inc. (NYSE:MER), the Next Hedge Target?

Sep 11 2008

Merrill Lynch & Co., Inc. (NYSE:MER), the Next Hedge Target?

Falling 16% today was Merrill Lynch & Co (MER) to a new 52 week low as investors drive the shares down on fear of yet another investment bank not being able to survive.

Fundamentals are a Mess

There aren’t very many fundamental indicators that are attractive for Merrill Lynch at this time excluding the current dividend yield which will probably not be paid. Yearly revenue growth is negative, past earnings announcements have been missed the last two quarters, and current earnings estimates have been slashed from an 84 cent profit to a $3.89 loss in 90 days.

Credit Crisis End not in Sight

Is it really possible for another investment bank to be taken down by the shorts into a panic selling mode where everything is shed in hopes of surviving? In this credit crisis environment, it seems even some of the biggest financial companies aren’t safe. If a company used too much leverage in the easy credit years like Bear Stearns, Lehman Brothers (NYSE:LEH), Freddie Mac (NYSE:FRE), or Fannie Mae (NYSE:FNM) and are not able to finance their current balance sheets, there is a chance they will be forced to close it now appears.

The Trade

Today might have been a capitulation day with volume over 3 times the normal level for the past three months. If this is the case and the stock reverses tomorrow, wait until there is a negative day of lighter/more normal volume before taking a short position.

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