Iconic financial firms are failing, Fannie and Freddie have been seized by the government and we still do not know the content of the Administration and Congresses’ $700 billion “bailout” bill let alone what impact it will have on financial markets. All of these circumstances have wrought a vastly different investing environment from that of just one or two years ago. Times are changing and we at Ockham Research find it necessary to make some revisions to the selected stocks that we highlight on the second page of our newsletter. Please take note of the nine stocks that we have replaced on our selected U.S. equity list as we strive to make the newsletter as useful as possible to our readers.

The credit crisis has spelled doom for many financial firms and many others have—because of their impaired state—been gobbled up by rivals. This massive consolidation in the financial sector accounts for eight of the nine replacements in our newsletter coverage.

For starters, we are replacing Lehman Brothers (LEH) which filed the largest bankruptcy case in U.S. history on September 15^th, 2008 after a nearly 140 year run. Similarly, we are replacing Washington Mutual (WM), which was seized by the Office of Thrift Supervision on September 25^th, 2008—ironically the 119^th anniversary of its founding. This was far and away the largest bank failure in American history, much larger than the 1984 failure of Continental Illinois. What remained (including debt) of its banking business was sold to JP Morgan Chase (JPM).

Fannie Mae (FNM) and Freddie Mac (FRE) have undoubtedly been hugely affected by the subprime loan crisis. On September 7^th, 2008 the government took control of these troubled mortgage giants under a conservatorship. This made formal the implied guarantee of the federal government for these government sponsored entities (GSE). We have also decided to remove AIG from our selected equities list. Not long ago this was the 18^th largest company in the world, but because of a liquidity crisis, AIG required a Federal Reserve bailout on September 16^th, 2008. Although the $85 billion credit facility was not as large as the bailout of the semi-public Fannie Mae and Freddie Mac, it was the largest government bailout of a private company in U.S. history.

Merrill Lynch (MER) and Wachovia (WB) fall into yet another category as companies that—although struggling—did not fail before being acquired. In the case of Merrill, on September 14^th, 2008 Bank of America (BAC) announced that it would acquire the venerable Wall Street firm for $50 billion or $29 per share. The BAC offer represented a 38% premium to Merrill’s book value, but a far cry from the 52 week high of $77.89. Wachovia’s banking operations were sold on September 29, 2008 for $2.16 billion in an “open bank” transfer to Citigroup (C). Wachovia was the fourth largest bank holding company in the U.S. based on total assets and will greatly expand Citigroup’s retail banking presence.

Lastly, we have removed National City Corporation (NCC) from our list. Its stock price has fallen 89% year to date and with a market capitalization of below $4 billion, it no longer fits our newsletter profile of a large cap U.S. equity. The last stock to be removed from the list is the Anheuser Busch Companies (BUD), whose merger with Belgian brewer InBev was approved by InBev’s shareholders on September 29^th and looks increasingly likely to be completed.

We have selected these 9 equities to replace them: AFL, BAX, DVN, GILD, KFT, PRU, RIG, SCHW and TRV. Because many of the equities we are dropping are in the financial sector we have added 3 financial stocks in AFLAC (AFL), Prudential (PRU), Charles Schwab Corporation (SCHW) as well as insurer the Travelers Company (TRV). The addition of Kraft Foods (KFT) to the Dow Jones Industrial Average made KFT a necessary addition to our newsletter. We have added two large energy companies with Devon Energy (DVN) and Transocean (RIG). Rounding out our additions are two large healthcare related companies of Gilead Sciences (GILD) and Baxter International (BAX).

In addition, we are now allowing visitors to our web site to see our full research reports on the 100 newsletter stock for absolutely free.  Please take a moment to check out our site and see how we have arrived at our ratings.

Apologies for the length of the memo, but as I said before, times are changing. We constantly strive to make the Enterprising Investor’s Guide as relevant and useful as possible, while still making it a very quick and efficient overview of the U.S. stock market.