How Would Lehman's Liquidation Affect Its Top Holdings?

Undoubtedly, you already know this news. Lehman Brothers (LEH) will file for bankruptcy protection, as it couldn't seem to sell itself this weekend. Merrill Lynch (MER) looks like it will be bought out by Bank of America (BAC) for around $25-30 a share ($29 a share offer being voted on), and AIG (AIG) will be restructuring.

If you want more info on all this than you can handle, just head to any major financial publication, as the news is all over the place. I'm not here to regurgitate this news. Instead, I want to turn my focus to a possible way to play this madness. In the event that LEH does liquidate, the following stocks will undoubtedly trade lower. Why, do you ask? Well, because they are some of LEH's top holdings.

Here is the list:

• General Electric (GE)

• Pfizer (PFE)

• Target (TGT)

• UBS (UBS)

• Linn Energy (LINE)

• GLG Partners (GLG)

• Merck (MRK)

• Microsoft (MSFT)

• Chicago Mercantile Exchange (CME)

• Bank of America (BAC)

• Apple (AAPL)

• Flagstone Reinsurance (FSR)

• Wellpoint (WLP)

• Walmart (WMT)

• Exxon Mobil (XOM)

• United Health Group (UNH)

• Google (GOOG)

• Johnson & Johnson (JNJ)

• Baidu (BIDU)

I want to highlight a few names from the list:

1. Bank of America has been actively involved in all the talks this weekend and for all intensive purposes, it looks as if it will pick up Merrill Lynch (MER). I think the market sells off BAC simply because MER is not in the best of shape, and it looks like it will be overpaying for the deal. If MER needs to be rescued, BAC could surely pick it up for much cheaper than where it is currently trading. Therefore, this is the reason that BAC could trade lower (along with the fact that, it still has the whole Countrywide Mortgage (CFC) mess to worry about). Then, if Lehman Brothers liquidates its BAC shares, you can guess where that name is headed: lower.
2. As I wrote about here, Apple isn't looking too hot on the technicals right now. It looks about ready to really breakdown, since it hasn't responded well to support levels. If LEH needs to liquidate its large AAPL position, this only presents more headwinds for AAPL.
3. Wal-Mart appears on this list and I want to point this out for investors who have wanted to get in this name. If LEH liquidates its WMT position, this will present an opportunity for those who want to get long WMT on the thesis of the American consumer trading down for cheaper items, which WMT supplies. I've written about this thesis numerous times, notably here and here. So, watch that name for any major dips.
4. I'd also throw Johnson & Johnson out as a possible name to buy off of any LEH liquidation weakness. It is firing on all cylinders and its consumer staples line-up works well in this mess of an economy. Keep in mind though, that things undoubtedly will be crazy this week. So, don't rush out and do something stupid. In addition, if you feel the need, keep it small. There will undoubtedly be opportunities from this. However, this is a huge mess just waiting to unravel. Watch the Volatility Index (VIX), and watch for panic and capitulation.

A special thanks to: "The Fly" over at ibankcoin.com for posting up this list of LEH top holdings.

 Disclosure: None

Comments

[tginomorebush:]

THE KING GEORGE III BUSH LEGACY

2008 Sep 15 08:24 AM

[User 262492:]

Right, blame it all on George Bush! That's certainly the kind of clear thinking you need these days. That and "the Democrats will fix it all." You should do just fine.

2008 Sep 15 08:36 AM

[tipalia:]

all our representatives ,republicans and democrats,are to blame. They seem to be interested in protecting the big institutions only at the expense of the small investors and the taxpayers. That s what we call capitalism at its best ,rich get richer and poor get poorer. We must all pay for the fat cats greed and poor decisions .The stock options are the source of all this mess, get rid of it ,today,period.

2008 Sep 15 09:00 AM

[willking:]

I agree with User 26737. King George III has done a job on us for eight long years. Everything he has touched has turned to nothingness or worse. Hopefully, Obama will surround himself with brainy and competent people who can extract us from the messes the King has saddled us with and lead us into prosperity and allow the nation to shine again. The damage done is so extensive that It will take a lot of doing.

2008 Sep 15 09:04 AM

[dsrtwriter:]

Nice partisan try, willking. Probably a good reason for SA comments to stay away from party stuff. This is a bipartisan reaming of the investor.
As you may know and ignore, the biggest obstacle to auditing and oversight of Fannie Mae and Freddy Mac was the Democrat powerful in Congress controlling the committees- Barney Frank ,Chris Dodd and others. They fought any attempts in the past to scrutinize these failed institutions.

And as you choose to ignore, Fanny Mae was a major contributor to Obama. Obama is just another articulate and attractive face on the old Chicago political machine. To expect him to "lead us into prosperity and allow the nation to shine again" ranks right along with Oprah's coronation of Barry as the "chosen one".

Failing societies always look for a Messiah, and we have descended to that level.

Let's get back pertinent investor comments. The election will happen,one way or another.

2008 Sep 15 01:09 PM

[BlueOkie:]

If 95% of the people will get a tax reduction under B.O.; how does the math work for the 40% of people who pay no taxes at all? I guess there is 135% taxpayers?

2008 Sep 15 01:56 PM

[Oltjbarn:]

Too bad the Democrats spent all their time beating up on George Bush instead of Legislating and they now expect to be the party of choice for America. Think again.

2008 Sep 15 02:20 PM

[Paco6945:]

The primary genesis of the current financial meltdown is subprime lending. Subprime lending was driven by Congress and acquiesced to by the administration. Both major political parties are culpable -- probably the Democrats more than the Republicans because their natural tendency is toward "government doing more."

Surely, it is clear by now to anyone who can think rationally that the government is the problem. More government will create more problems.

2008 Sep 15 06:10 PM

[readerweb:]

it is very grand of you not just to repeat the same perspective and provide us with a fresh view of things to come.

2008 Sep 18 02:38 AM