NASDAQ continues to trek higher

US Stocks
Life science is not just about genetically modified crops like better and bigger yielding corn. In the investment world, it straddles the pharmaceutical, healthcare, and biotech areas. While difficult to pinpoint, the basic explanation is any business that is involved in the improvement of human health aided by the appliance of science to create new therapeutics.

With the help of advance technology, the cost of new drug development and time needed will be reduced by more than 50% & 30% respectively. This is due to the fact that researchers are having a better understanding of the mechanism of diseases, and technology is available to process the literally billions of data points that are needed to quantify the human body.

This is all possible when the mapping of the human genome was sequenced last year. Scientists gained access to the 3-billion biochemical "letters" that spell out tens of thousands of genes.
Rather than the conventional method of trail and error, once the genetic basis of a disease is understood, and what protein it produces, a drug can be developed to block it. It will have much less side effect than the traditional medicines, because it will be a tailored or targeted drug. At present, commercial drugs are based on only 500 therapeutic targets, but with the recent advances, there will soon be over 2,000 available.

Like technology, life science is a high risk, high return investments, but there is a difference. If a drug is developed, an intellectual property will protect the position for 20 years.

For your reference, the following are two companies that are involved in the life science business and are followed by CSFB:

*prospective 2002 earnings & growth rate, losses for MLNM

Applied Biosystem (ABI $80 3/8) - develops analytical systems, software to the biotech industry and research community. Its products are used to analyse molecules and proteins for pharmaceutical development, and testing purposes.

Millennium Pharmaceuticals (MLNM $45 3/16) - apply technology in developing drugs and predictive medicine that enables healthcare professionals to make better informed decisions on drug treatment and patient care.


US Technology Stocks
On a week-on-week basis, the NASDAQ Composite Index gained 5.5% to close at 2770. For the week ahead, we expect the market to continue trekking higher but to lose strength as we approach 3000 due to profit-taking activity. Positive sentiment from favourable December earnings results (from top tier technology companies) released last week is expected to spill-over marginally to the week ahead and support higher prices. We do not expect prices to "run away" and rally without pause (especially, given Mr Greenspan's speech on Thursday).

Nortel Networks (NT US, $40.00, CSFB rating: Strong Buy) released solid 4Q00 results. Though NT posted a loss of $1.41 billion (compared with 4Q99 net income of $172 million), earnings per share from operations of $0.26 cents was in line with estimates. Better than expected sales (+20.6% sequential growth, +34.2% yoy) of $8.82 billion, exceeded First Call consensus estimates of $8.65 billion. Looking ahead, we believe NT is well positioned to post significant market share gains in 2001 in wireless networks, core switching, and DWDM systems. We view NT as a core holding for investments into the technology space. Maintain buy at current levels (12-month price target at $80.00).

Intel Corp (INTC US, $33.56, CSFB rating: Buy) reported 4Q00 numbers with net income (excluding acquisition-related charges) that declined 9% sequentially but increased 10% yoy to $2.6 billion. EPS of $0.38 was in line with expectation. Revenue growth was marginally flat sequentially but edged up 6% on yoy growth to $8.7 billion. INTC's management lowered 1Q expectations with revenues declining 15% sequentially, and increased capital spending plans to $7.5 billion. We like INTC as a long-term investment. However, we expect the company's stock price to remain depressed over the next 3-months as PC demand continues to be weak and CPU chip price competition remains high. We expect new products (0.13 micron P4 chip) to help improve INTC's earnings momentum only after 3Q01. We do not recommend to accumulate INTC for any near-term performance.

Applied Micro Circuits (AMCC US, $86.50, CSFB rating: Strong Buy) reported healthy 3Q00 results with net income (excluding costs for acquisitions, stock option taxes, and amortisation of goodwill and purchased intangible assets) that grew 35% sequentially and 297% year-on-year (yoy) to $48.1 million. Earnings per share (EPS) of $0.16 surpassed analyst expectations of $0.14 a share. Revenue increased 48% sequentially and 212% yoy to $143.3 million. We recommend to take-profits at current levels (removed stock from our buy recommendation lists on profit-taking). We continue to like AMCC and recommend to buy the stock on weakness at $70.00 (12-month price target at $97.00).

Micromuse Inc (MUSE US, $77.30, CSFB rating: Strong Buy) reported strong 1Q01 profit results with net income rising 43% sequentially and 206% yoy to $7.7 million. EPS of $0.10 exceeded consensus estimates of $0.08 a share. Revenues expanded 21% sequentially and 123% yoy to $49.8 million. MUSE's 1Q01 strong performance was maintained by new customer additions (+142), healthy repeat business and strong new product growth. While we continue to like MUSE, we do not suggest to "chase" after the stock (especially after its recent run-up). Instead, we recommend to take-profits as we believe the stock has good potential to weaken ahead. We recommend to accumulate the stock on profit-taking days at $60.00 (12-month price target at $100.00).

Commerce One Inc (CMRC US, $28.03, CSFB rating: Strong Buy) reported strong 4Q00 results with losses that widened unexpectedly to $197.5 million. However, excluding acquisition-related costs, EPS of -$0.05 exceeded expectations of -$0.07. Revenues for the quarter advanced 70% sequentially and 1033% yoy to $191.4 million. Costs were well controlled and helped generate a smaller-than expected operating loss. As CMRC's stock price is $2.00 shy from our profit-protect target of $30.00, we do not recommend to accumulate the stock at current price levels. Rather, we recommend to buy CMRC on price weakness at $24.00 (12-month price target at $40.00).


Europe
Looking at the Euro STOXX 50 Index markets have not really moved a lot over the first three weeks. The index is down 1.1% year-to-date. From a superficial point of view there is not much that changed ie. markets are volatile and the index remains flat. However, looking closer we can conclude that investors' preferences have changed significantly after the FED lowered interest rates. Interest rate sensitive sectors such as the telecom, media and banking sectors are up between 15% and 4.5% respectively while healthcare and food stocks have lost more than 11%.

While we do not believe that the strong performances in (especially, given Mr Greenspan's speech on Thursday). many stocks will be sustainable in the short-term we consider the recent shift in sector preferences as the beginning of a trend that will develop over the next few months. We believe that the time has come to turn more positive on growth stocks that suffered dearly over the last few months. There is a risk of being overly pessimistic now.

The fact that stocks react positively to earnings that meet estimates and present an outlook that bears nothing new underlines the assumption that there is a lot of negative news priced at current levels. Knowing that the FED will react on a worsening of the economic situation provides a downside risk that is not too high. Investors with a 12month view will be rewarded for putting their money at work in the next period of consolidation (we would not chase stocks now but use profit taking to enter the market) provided they focus on valuation and quality of management and products.

We recommend investors who have overweight defensive sectors over the last few months to reduce their positions. The losses of more than 10% in the insurance, healthcare and food sectors might trigger concerns whether the same could happen to these sectors as it happened to TMT in March 2000 since these sectors are now traded at historically high levels. We believe the situation cannot be compared since the defensive's relative valuation has not reached the levels of TMT in March 2000. However, after the good performance over the last months the consolidation could go on for a while and profit taking could bring these stocks even lower over the next few months.

ASM Lithography (ASML NA; EUR 30.57) was the first blue-chip technology company to report earnings. Since the company is developing and manufacturing machines that print circuits on microchips its report and outlook was expected with some caution since it can be seen as a proxy of capital investment of technology companies. ASML beat expectations by a good margin by quadrupling profits. The company said that demand has softened somewhat over the last two months but still exceeds ASML's capacity for 2001. Order cancelling was very limited so far but the company admits that companies will review their situation over the next six months. We feel that these might be an indication that chip manufacturers consider the current slowdown to be of short nature. We consider ASML's earnings report as important as it supports our strategy that 2H01 could be better for markets.

This week will deliver important earnings reports from companies such as SAP (23.1.), STM (25.1.) and Ericsson (26.1.). Coupled with a string of earnings reports from the US companies, the market will very much be driven by the outcome of these events. We recommend using weakness in the overall market to buy quality financial and technology stocks with a time horizon of 12 months.


General disclaimer:
This document has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell the security. Any references to past performances is not necessarily a guide to the future. The research and analysis contained in this publication have been procured by Credit Suisse and may have been acted on before being made available to clients. For further information, please contact your investment advisors or Investment Consulting.