hjmann.com Blog

With the, ahem, “retirement” of CEO Stan O’Neal, is now a good time to buy Merrill Lynch stock? The answer is not yet, and is based in a lesson I learned early in my working career.

In college, I had a part time job delivering appliances at a large appliance store. Now, by the sheer volume we handled, we on occasion dinged or damaged an appliance. But since we sold only a handful of models, there were always plenty in stock, so we just put the damaged ones behind the good ones in the warehouse.

I left this job, and I later found out my co-workers took the opportunity to clean out the warehouse of all damaged appliances, and they did so by laying the responsibility for those damaged appliances on me.

And, yes, it goes the same way on Wall Steet. Whomever the new CEO is, you can bet that job #1 will be to use this next quarter’s earnings report to take charges for every suspect piece of business on the books, so that he can begin his tenure with a clean slate.

And it is naive to believe that Merrill or anyone else really knows the full dollar amount of the exposure… remember, Merrill came out three weeks before earnings and said the damage was about $2.5 billion, and on earnings day said the damage was nearly three times that much. The fact is, these guys have their fingers on the pulse and still don’t know the condition of the patient. So you can bet that the new CEO will take the kitchen sink approach to clean up the books.

After that, take a good look at Merrill. With this mess off the books, the other 85% of Merrill’s business appears sound. And at a price just above the two year low, it looks like a buy.

Disclosure: I do not hold any positions in the stocks mentioned here. I am not a professional, but I am trying this at home. It is highly recommended that you consult a licensed financial advisor or broker before making any and all investment decisions.

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