Merrill Lynch

said in a research note that oil service stocks have fallen sharply for several reasons, including: mutual fund selling, to take profits before the fiscal year ends; concern that oil prices will fall from the current low $30s; and worry that natural gas prices will also fall, partly because of warm weather.

Merrill said that while the near-term weakness may persist before a widely anticipated decline in oil prices, it considers oil service stocks very strong buys at their current prices. "We believe that many stocks in the group can rise 50% or more over the intermediate-term," the note said.

The note said that there are particularly good opportunities among the mid-cap oilfield stocks. For those stocks, projected earnings multiples now average under the market for 2001 and predicted earnings growth averages over 30% a year for the next three to five years.

The brokerage cited such standouts as

Smith International

(SII)

, which is selling at 27 times the firm's 2001estimated EPS of $2.60;

BJ Services

(BJS)

, selling at 19 times its 2001 estimated EPS of $2.70; and

Weatherford International

(WFT) - Get Report

, selling at 22 times its 2001 estimated EPS of $1.65.

Upgrades

Bindley Western Industries

(BDY)

: UP to outperform from neutral at

Salomon Smith Barney

.

Harman International

(HAR)

: UP to strong buy from buy at

Credit Suisse First Boston

.

Marine Drilling

(MRL)

: UP to strong buy from hold at

ING Barings

; price target: $30.

Downgrades

Cambridge

(CATP)

: 2000 EPS view DOWN to loss of 66 cents from loss of 33 cents at

Goldman Sachs

; and 2001 EPS view to 10 cents from 40 cents.

Chiron

(CHIR) - Get Report

: DOWN to hold from buy at CSFB and DOWN to neutral from outperform at

Morgan Stanley Dean Witter

.

TST Recommends

Clear Channel

(CCU) - Get Report

: 2000 EPS view DOWN to a loss of 30 cents from loss of 22 cents at Goldman.

Crompton

(CK)

: DOWN to neutral from buy at

Lehman Brothers

.

Keane

(KEA)

: DOWN to market perform from outperform at Goldman.

PepsiCo

(PEP) - Get Report

: DOWN to hold from buy at CSFB.

Initiations

Chiles Offshore

(COD)

: NEW buy; price target: $26 at Salomon.

Lexmark

(LXK)

: NEW outperform at

Sanford Bernstein

.

Group Moves

Deutsche Banc Alex. Brown

started coverage of Internet software and services companies

Vastera

(VAST)

and

Docent

(DCNT)

as buys.

Lehman raised its ratings on

Protein Design Labs

(PDLI) - Get Report

and

Abgenix

(ABGX)

to outperform from neutral.

Salomon Smith Barney started coverage on five machinery companies:

  • Deere (DE) - Get Report: NEW neutral; price target: $37.
  • Caterpillar (CAT) - Get Report: NEW neutral; price target: $37.
  • CNH Global (CNH) : NEW neutral; price target: $10.
  • Parker-Hannifin (PH) - Get Report: NEW outperform; price target: $44.
  • Ingersoll Rand (IR) - Get Report: NEW outperform; price target: $42.