MOODY’S CORP. $53 (New York symbol MCO; Conservative Growth Portfolio, Finance sector; WSSF Rating: Average) provides credit ratings on bonds and other securities issued by roughly 200,000 commercial and government entities in over 100 countries. The company has about 40% of the global credit rating market. It also sells credit risk management software to financial institutions.

Moody’s stock has dropped roughly 25% in the past three months. Investors fear that rising interest rates will cut interest in new debt securities, particularly those related to the home mortgage industry. It now trades at 26.0 times its forecasted 2006 earnings of $2.08 a share. The $0.28 dividend yields 0.5%.

The company is currently one of five companies designated by the SEC to provide credit ratings on new securities. Issuers can speed up the registration process if they have a credit rating above a certain level.

The SEC is now looking at opening up this field to other companies. While the threat of increased competition adds to Moody’s risk, most bond issuers would probably stick with well-established firms.

Moody’s now aims to take advantage of growing economic activity in China. It recently paid an undisclosed amount for 49% of a leading Chinese credit rating firm. Moody’s technical expertise combined with the Chinese firm’s local knowledge should give it an edge in this rapidly expanding market.

The company recently doubled its stock buyback plan, which will help offset the dilutive impact of its stock option plans. That will help stabilize its per-share earnings. But the stock is vulnerable to rising interest rates.

Moody’s is a hold.