Financial Sector hot picks

Bearing on the Bull
Expect Stan O'Neal, the beleaguered chief executive of Merrill Lynch & Co to step down in the next few days. In reality it is nothing that he did, as much as he was a victim of the success and failures of the financial sector. Unfortunately, when it comes to financials everyone expects them to consistently see double-digit growth; ML had warned of weaker earning, but in the weeks leading up to the report, they had done a wonderful job of downplaying their actual sub-prime exposure. All of this adds up to bad news for high-paid Execs and good news for investors. Merrill will bounce back, and now is the time to buy. As soon as the CEO is gone, the Market will respond, on speculation, that Merrill will turn things around.
Rating: Strong Buy

Bullish on Bear
Citic, Asia's largest securities firm, will pay $1 billion for the equivalent of 6 percent of New York-based Bear Stearns's shares, and the US brokerage will invest the same amount in Citic, the companies said yesterday. They agreed to team up to sell financial products and services in China, and plan a Hong Kong-based joint venture for other Asian markets.

Bear Stearns chief executive James "Jimmy" Cayne, 73, trails US rivals in China, where he has struggled to build a business since opening a Beijing office in 1992. His company has fallen as much as 37 percent this year in New York trading, beset by the collapse of the US sub-prime mortgage market. Surging defaults on loans to home buyers with poor credit histories pushed two of the firm's hedge funds into bankruptcy and eroded its fixed-income revenue.

Bear is still not as attractive as Goldman or Lehman on the short term, but in terms of value it is a cant miss stock. Almost every American bank lost money and/or brokerage house lost money this year. Why is that.

It seems that the Aussie's have the answer, just look at ANZ: they remained glued to their core competency and established a diverse mix of capital investments. Also known as good management. They have a 33% P/E ration, and expect 12% in growth over the next 12 months. Additionally, they are well placed in emerging markets, which tend to have high yields.
Rating: Buy