Cautious approach to accumulating technology stocks at the current time (page 3 of 3)

This profit warning came only two months after the company confirmed earlier guidance that it will exceed 2000 profits. The stock lost 54% on Thursday and closed the week down 59% at GBP 1.045 compared to a previous high of GBP 12.50 in September 2000. The fact that the management had the stock suspended makes it even worse as institutional and private investors alike were robbed of the opportunity to make their own decisions. However, the degree of the shortfall underlines our earlier concerns. Capital expenditure among European companies almost came to a standstill in May and June. Even though the reporting season has ended before it started after most major companies have pre-announced, it bodes bad for the outlook these companies will give ones they deliver the hard facts for 2Q01. We remain very cautious on European markets in general and on technology in particular.

Since the severity of the current economic downturn will be much more serious than expected, it appears harder to believe that cyclical stocks will perform well. We believe it is crucial to take into account the geographical and sector exposure. European companies with a high non-technology exposure in USA are the most attractive in our view, as the US economy will lead an eventual global recovery. Lafarge (LG FP; EUR 104.90) and Syngenta (SYNN VX; CHF 97.35) are two conservative picks that meet these requirements. Both stocks managed to gain more than 3% for the week in these difficult markets.

After a weak start to the year, the insurance sector has managed to outperform the market over the last two months. The decline of 14% year-to-date has left these stocks attractively valued given the defensive exposure of their business. Our favourite stocks in this sector are ING (INGA NA; EUR 39.04) and Allianz (ALV GY; EUR 333.85).

This week will prove to be the first milestone for the battered handphone stocks. Motorola (MOT US; USD 15.37) will release 2Q01 earnings on Wednesday. The guidance for 2H01 could keep these stocks volatile.

Infineon (IFX GY; EUR 26.65) will price the new shares of its secondary offering on July 12, 2001. First trading will be on July 13, 2001. The recent share price decline caused rumours in the market that the offering might be cancelled. Infineon reiterated its firm commitment to go ahead with its plans but made it clear that they will not sell at any price.