It's Not the Time to Go for Brokers

In these volatile times, call your broker. But don't be tempted to buy your broker.

Pure-play brokerage stocks -- like Goldman Sachs (GS Quote), Morgan Stanley (MWD Quote), Lehman Brothers (LEH Quote), Bear Stearns (BSC Quote) and Merrill Lynch (MER Quote) -- have plunged since the Sept. 11 attacks and appear cheap -- at least superficially. But while one or two of these names, perhaps Morgan Stanley, could rally a smidgen from there, the others are either going to fall from this point or stagnate at current levels. Most vulnerable to a further slide is Goldman, which still looks egregiously overvalued.

After the terrorist strikes, brokerages have had to deal with business disruption, a dearth of new issues and M&A opportunities, tanking stock indices and a grim economic outlook. Sure, a lot of this has been factored into stock prices. And some of the brokers are getting to be as cheap as they were in 1998, after the Long-Term Capital Management emergency. Goldman trades at 13 times expected 2002 earnings. For Merrill, this ratio is 12, for Morgan Stanley 10, for Bear Stearns it's only nine and it's a mere eight times for Lehman. ...