Market volatility expected (page 3 of 3)

We expect Carrefour to be re-discovered as a top-quality defensive blue chip in the months ahead and reiterate our buy recommendation with a target of EUR 85.

We deleted Deutsche Bank (DBK GY; EUR 95.26) from our recommendation list. After the recent earnings report we see little short-term upside for Deutsche Bank. Valuation is stretched in our view and the announcement of the reorganisation plan contained little news and lowered earnings visibility. Deutsche Bank gained 46.26% since our recommendation in October 1999 and performed very well year-to-date, up 8.48%.

We continue to like the financials and hence we have added Nordea (NDA1V FH; EUR 7.95) to our recommendation list. Nordea is the largest Nordic financial services company with main activities in retail banking (54% of earnings), corporate and investment banking (21%) and asset management and life insurance (23%). Nordea's attraction lies in its low valuation (P/E01 10.9x) and its strong exposure in the rapidly growing life insurance and asset management businesses combined with a robust and highly profitable banking business. We expect the stock to test its old highs close to EUR 9, which leaves an upside in excess of 13% from current levels.

We also added Schneider (SU FP; EUR 69.4) to our recommendation list. A few weeks ago Schneider announced a merger with French competitor Legrand, which would create the world's biggest maker of electrical equipment. 76% of Schneider-Legrand sales is power distribution, i.e. the company manufactures anything that gets electricity from the power plant to the end user. Schneider's focus is mainly on low & medium voltage, which is a higher-growth, higher-margin business. The new company generates 57% of sales in Europe, 29% in US and 14% in RoW (Rest of World). In the US we expect Schneider-Legrand to benefit from the energy crisis as demand for distribution equipment should remain high. Since Schneider & Legrand have a very similar earnings growth and low-cyclical profile we believe the valuation discount (EV/EBITDA01) to ABB is not warranted after the merger. Based on conservative assumptions we expect Schneider to reach EUR 83, which is a 19.6% upside from current levels.

We expect technology stocks to remain volatile in the weeks ahead. We are particularly concerned about last week's downward guidance of US companies such as Nortel, Dell and HP. This might be an indication that the downturn is much more severe and will take longer than expected. With the problems in the telecom sector well known new investments might be further postponed. We now believe that a quick recovery in 2H01 is becoming increasingly unlikely as demand will remain sluggish and inventory adjustments will take longer. Unless we get a quick confirmation where the economy is heading to, hardware stocks could go a bit lower from here in the next few weeks and months even though long-term valuations might look attractive. Hence we would advise to be cautious with new investments but advise long-term investors not to panic now. There is no point in chasing any stock. Setting limits is an appropriate strategy in the current environment of high volatility. Our sector favourite is the IT consulting company Cap Gemini (CAP FP; EUR 199.10).



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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.