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Goldman Sachs: Buy JPMorgan, hold off on Morgan Stanley

June 26, 2012: 12:26 PM ET

Goldman Sachs (GS) told investors early Tuesday to buy JPMorgan Chase (JPM), and  stop buying Morgan Stanley (MS).

JPMorgan Chase was upgraded to a so-called "conviction list buy," which, in Goldman Sachs' parlance, means run out and buy it. Conversely, Morgan Stanley was downgraded to a "hold" from a "buy."

Both banks have seen share prices fall precipitously this year, because of what Goldman's analysts say are "idiosyncratic events," including potential repercussions from Morgan Stanley's two-notch downgrade by Moody's, and the impact of JPMorgan's trading loss of more than $2 billion on earnings.

Morgan Stanley's downgrade, while not as bad as expected, could still have a longer-term impact on the firm's trading activities, cutting into its market share and hurting future profits, Goldman's analysts said.

In contrast to Morgan Stanley's issues, JPMorgan's trading loss is more of an aberration, according to Goldman's analysts, who said they buy CEO Jamie Dimon's forecasts for a "solidly profitable" second quarter.

"We believe Jamie Dimon's testimonies were an important first step in removing some of the worst-case scenarios priced into shares," said Goldman's analysts.

Still, even bad news can be good for the stock. Morgan Stanley reversed earlier losses to trade about 1% higher midday Tuesday. Shares of JPMorgan rose about 1.5%.

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Maureen Farrell
Maureen Farrell
Staff writer, CNNMoney

Maureen Farrell is a staff writer at CNNMoney and covers Wall Street, banking, mergers and the stock and bond markets. Prior to joining CNNMoney, she covered venture capital and entrepreneurs for Forbes, and mergers and bankruptcy for Mergermarket and Debtwire, both divisions of the Financial Times.

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