Moody's, S&P Are Unstoppable

NEW YORK (TheStreet) -- Warren Buffett is selling the stock, the lawsuits against the company are gaining ground, but Moody's Ratings Service (MCO Quote) and McGraw Hill's (MHP Quote) Standard & Poor's provide a service that we, as human beings, are simply unwilling to do without.

The ratings agencies are facing heavy selling pressure after a judge rejected their longtime defense that they are protected from litigation because their ratings are mere opinions and should be protected as free speech under the First Amendment.

Adding to the damage was Buffett's Berkshire Hathaway (BRK.A Quote), a major Moody's shareholder, which cut its stake in the beleaguered credit ratings agency for the second time in less than two months.

Moody's shares were down 6.90% Thursday and another 11 cents in recent trading Friday. McGraw Hill dropped more than 10% Thursday and was adding 32 cents on Friday, buoyed by a report from Jefferies & Co., which reiterated its "buy" rating.

Jefferies analyst Brian Shipman prefers McGraw-Hill to Moody's, because it trades at a lower earnings multiple and has a publishing business, which offsets weakness in credit ratings. Shipman believes federal spending on education will be a bigger benefit to the textbook industry -- in which McGraw-Hill is a major player -- than other analysts are counting on.

Shipman writes that the court decision may not be as bad as the markets are saying it is. Judge Shira Scheindlin of the New York Southern District decision on Thursday ruled that ratings on securities sold to a select group of investors shouldn't get free speech protections, according to an article in The Wall Street Journal Thursday.