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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jenna who wrote (55757)	8/13/1999 5:47:00 AM
From: puborectalis	Read Replies (1) \| Respond to of 120523

Merrill Lynch has reached a turning point.... 'Gritty' Merrill rises to the fight Champ & challengers train for the main event By Portia Richardson, CBS MarketWatch Last Update: 6:23 PM ET Aug 12, 1999 More Commentary Join the discussion NEW YORK (CBS.MW) -- Like a gritty prize fighter who won't surrender to a tough young challenger, Merrill Lynch keeps getting up, and keeps winning. This week, Merrill announced it's agreed to act as an anonymous broker, or clearing agent, for asset managers and mutual funds using Optimark Trading System, a securities matching system that cuts out brokers. While it looks like Merrill (MER: news, msgs) is caving to technology yet again, it gives Merrill an edge in generating clearing fees. And that's one thing Merrill never loses: its edge. After losing massive trading volume to online brokers during the first half of the year, Merrill went head to head with Schwab (SCH: news, msgs), Datek and E-Trade (EGRP: news, msgs) in June when it rolled out Unlimited Advantage, an Internet trading product for their pampered fee-based accounts. As a result Merrill opened up 1,500 accounts daily for a month afterwards. And Merrill is about to stick it to Schwab, its biggest competitor, by launching an ad campaign that says the discount broker gets research reports (Merrill's, of course) three days "after the big boys read it." By the way, Merrill's research is worth something; a Merrill analyst predicted Brazil's currency crisis four months before the Real dropped 30 percent. The big fight The main event between full-service brokers like Merrill and the Schwab's of the world will be when boomers start retiring in 2005 and need investment advice on their $500,000 to $1 million nest eggs. Merrill is positioned to excel here, and investment advice is key. They're pushing their 14,000 financial consultants to get licensed as Certified Financial Planners, so they can give investment and estate planning advice. The word is Merrill's aggressively hiring lawyers as brokers because they're schooled in estate and tax law. Merrill's thrust is fee-based accounts that charge, say 1 percent, on large pools of assets, not commission accounts generating a lowly $29.95. Merrill cut its commissions last June to compete with discount brokers. Indeed there is so much emphasis on Merrill's Private Client Division, which generates lots of fee-based business, that Launny Steffens, Executive V.P. of Merrill's Private Client, is rumored to be slipping into Herb Allison's shoes as C.O.O., now that Allison's resigned. Battle scars That's retail though. Merrill's institutional side isn't looking quite as rosy. As well as being the largest securities broker, Merrill is the No. 1 underwriter of bonds and IPOs. This can be a mixed blessing if the Fed raises rates and Merrill's bond business gets zapped. The good news is, the Fed's beige book says inflation isn't a threat. Even if rates go up, Merrill's a shop full of scrappy fighters with a lot of resilience. When emerging markets fell out of bed last year during the Asian crisis, Merrill's stock and bond volume evaporated overnight. Merrill responded by downsizing its divisions, firing 10,000 employees -- mostly emerging markets and support staff -- and instituting a six-month hiring freeze. The move paid off since their stock came roaring back almost 100 percent, from a 52-week low of 35 last August to 66 3/4 by year end. It closed Thursday at 71 3/8, near the middle of its 52-week range, with the high at 102. Merrill's IPO business is expected to stay strong. Earnings should come in at $530 million for the year. That's not as strong as last year's $ 627 million -- a 53 percent annualized return -- but a nice 27 percent return that may outperform S&P 500 this year. The trouble with Merrill is that the stock has a beta of 1.6. That means it's 60 percent more volatile than the S&P 500. If the S&P drops 20 percent Merrill's stock would drop 32 percent. But look at it this way: if you bought Merrill at 6, where it closed out 1988, and held it 10 years, you'd have see a 1000 percent return. Not bad for an old pug. Portia Richardson, a financial writer and editor based in New York, writes for CBS MarketWatch. Printer friendly format Refer this article to a friend