Power Lunch

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Power Lunch

Sell Brokerage Stocks? Analysts Sharply Divided


Does the current market turmoil mean the big brokerage houses are in trouble? Depends whom you ask. CNBC's Sue Herera heard from two experts -- with two very different outlooks on the industry.

Richard Bove maintains that the brokers will continue to decline in price. Speaking on "Power Lunch," the Punk, Ziegel & Co. financial strategist depicted an environment where a "massive expansion" in the money supply has been chasing "weaker and weaker deals" in recent years -- deals that were "poorly" underwritten.

Bove declared that the "fringe ends" of the industry -- e.g., subprime lending and the Chinese markets -- will "creep in" to the core market and "things will blow up." He told Herera that the "best advice" to clients is to sell these stocks, and wait until year's end to look for a turnaround.

Brokerage Risks

But Standard & Poor's credit analyst Tom Foley disagrees: Despite everything the market has suffered over the past week, Foley insists the brokers "look strong." He pointed out that last October, S&P upgraded Goldman Sachs, Merrill Lynch and Bear Stearns, and raised its view on Morgan Stanley to positive from stable. The analyst reminded viewers that the big firms had been doing well for years, only seeing ominous "issues" in the last month -- and he underscored that S&P ratings are based on a "longer-term outlook" than many traders take.

Big Brokers, Big Questions