TROUBLES AT MERRILL (MER), WEAKNESS IN THE FINANCIALS, AND A GREAT RAILROAD COMPANY

10/24/07 1:00 pm Central Time

By Dave Harris

Stocks are giving back some recent gains today, as troubles in the housing industry and the new credit crunch concerns investors. In economic news, September existing home sales fell 8 percent while median home prices fell 4.2 percent, that's worse than thought. Losses from credit related issues and subprime mortgages caused Merrill Lynch (MER) to announce a huge miss in the third quarter. The financial company warned of market uncertainty and reported a 7.9 billion dollar write-down in relation to the credit crunch and subprime. This is their first quarterly net loss in 6 years. The stock is down 5.01 at $62.11. Other financials are lower, including Morgan Stanley (MS) down 2.29 to $61.33. Goldman Sacs (GS) is down over 2 percent at $219.17. The banks are hurting too, including Bank Of America (BAC), JP Morgan (JPM) and Citigroup (C) which are all lower.

Earlier this week, American Express (AXP) reported a 10 percent third quarter profit. Revenue increased by 11 percent. It was a mixed bag, because the earnings came in better than expected, while the revenue missed views. This is the sector I would avoid now, and would put a sell on the stock until market credit concerns start fading out.

Apple (AAPL) is dipping slightly. The company had a 67 percent rise in the fourth quarter. They're doing great on the Mac end, while iPhones and iPods are strong. I would buy some shares on the dip. The stock is down 4.22 at $181.94. I have an overweight recommendation on tech.

I've been a long time fan of Burlington Northern Santa-Fe (BNI). The railroad had a great third quarter, up 8.4 percent on high demand for agriculture shipment. Revenue was up a solid 3.3 percent. This company has some real profitability going forward, even with higher energy prices. Today it's taking back 2.13 at $84.41 per share. It's going to $95. With a P/E of about 17, it's cheaper than Union Pacific (UNP). The shares are attractive here, in my view.

The Down Jones Industrials are down 186.07 at 13,490.16. The S&P 500 is 27.70 lower to 1,491.89. The NASDAQ is giving back 71.06 at 2,728.20.

Tomorrow we get the durable good report for September, an indication of manufacturing strength. Also earnings from the likes of Bristol-Myers (BMY), insurer Hartford Financial (HIG), Microsoft (MSFT), cigarette maker Reynolds American (RAI) and Starwood Hotels and Resorts (HOT). Exelon (EXC) the utility and Waste Management (WMI) report on Friday.