Recap of Saturday, May 18:Merrill Lynch; Bank of America

Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:

David Asman: Elizabeth, some big stocks are about to get punished. Why?

Elizabeth MacDonald, senior editor: That's right. Companies are using fake paper profits from their employee pension funds.

David Asman: You mean their employee's pensions make money and they slide those figures into their earnings reports?

Elizabeth MacDonald: That's right. So we have Goodyear (GT) for example, cutting its losses from last year by hiking their rate of return that they expect to get on their employee pension funds. Other companies are IBM (IBM), Lehman Brothers (LEH), Baxter International (BAX) and FleetBoston (FBF). Basically these companies are filling the holes with these fake paper profits.

Scott Woolley, associate editor: People like Warren Buffet are lowering their expectations of what the market will return at something like 7 percent. And these companies are hiking it to 11-12 percent. There's clear incentive to play games here.

David Asman: Okay Scott, let's stay with you. Star Wars, saw the movie this week. How can we profit from it?

Scott Woolley: The real money today is in video games. Sony (SNE) has taken the lead in the next big thing in video games. They're the licensee for the new Star Wars galaxy games. They can start taking it at $10 a month from theoretically several million people.

Leigh Gallagher, staff writer: There's no question Star Wars is an incredible licensing franchise. So far the total franchise has pulled in more than $5 billion in licenses.

David Asman: Okay Leigh, what have you got for us?

Leigh Gallagher: Weight Watchers (WTW) invented the concept of classroom dieting. This company is 40 years old and has only been public since last November. Membership is up 50 percent in the last two years.

David Asman: But the stock is up too, right?

Leigh Gallagher: The stock is high. This is something to look at and maybe wait it out a little bit. They have a lot of things going for them right now.

Elizabeth MacDonald: Yes. I saw a statistic that over two-thirds of Americans are considered overweight.

Leigh Gallagher: That's true. And the IRS is even recognizing this. Next year you can deduct your weight watchers meetings as a medical expense.

David Asman: Okay, let's go from Star Wars to fat to books.

Chana Schoenberger, staff writer: The book industry study group came out with a very bad report saying that the book industry slipped by about 2 percent. People are reading less. They're reading on average 80 hours a year. We use to read about a 100 hours a year. So companies like Borders (BGP) and Barnes & Noble (BKS) are going to suffer.

David Asman: Is anyone bullish on the book industry?

Elizabeth MacDonald: No. Everyone thought these bookstores would take over the libraries and that just hasn't happened.

Makers and Breakers

Merrill Lynch (MER)

Rob Stein, Astor Asset Management: MAKER

I like Merrill Lynch from a trading standpoint. I'm actually negative on the market as a whole. We know the company has legal issues but they've sliced $10 billion off the market cap of this company. That's just too much for a company as strong as Merrill Lynch.

Elizabeth MacDonald, senior editor: BREAKER

I'm a mild breaker on this stock. It's trading at $43. I think the Eliot Spitzer investigation will hurt this stock. Post Spitzer I see it going to $50 or more. I think that UPS or Paine Webber could pick this up as a takeover candidate.

Jim Michaels, editorial vice president: MAKER

Let me just say this Liz, one man's Texas Chainsaw Massacre is another man's cost cutting rationalization. Merrill Lynch's costs are too high and they're bringing them down. That's why I like this stock.

Bank of America (BAC)

Rob Stein, Astor Asset Management: MAKER

I like Bank of America because of their interest rate differentials at 1.5 percent. They're able to take money in cheap and loan it out at a higher rate. Additionally loan demand will pick up if the economy makes a turnaround.

Jim Michaels: BREAKER

This is a lousy stock. It's a second-rate bank. Secondly, it's concentrated in one area. It's very vulnerable to problems out west. For a couple of points more you can buy Citibank.

Elizabeth MacDonald: BREAKER

I don't like this stock either. I think it's pricey at $76. Also, they have a lot of non-performing loans, problem loans, on their books. And they did a tax shelter deal that the IRS frowned upon.

Rob Stein, Astor Asset Management: Bank of America has been making a lot of acquisitions over the last few years. Now it's time to digest these acquisitions and become more diverse. I think they'll benefit from all this.