Build up long term positions rather than chase stocks (page 1 of 3)

US Stocks

Arguments run both ways: Value investors want to buy cheap assets. They will be stomping mad if this is the bottom because assets never got cheap enough for them. The analysts/economists/strategists from Wall Street are probably keen that things improve as much out of conviction as much out of self-interest

There are not enough compelling reasons to believe this is a rally. But the reasons never are compelling at the bottom. Earnings growth rates are the primary determinant of stock prices over long periods of time. But at the same time, earnings are lagging, not leading indicators. After the last recession, it took four years until earnings on the S&P recovered to prior highs. Stocks were however cheap in other terms, like relative to book value, replacement value or assets. That being said we would not make a case for investing based on valuation. Especially since the rally is not value-driven. It is liquidity-driven.

The lack of E in the P/E would make the stock markets fairly expensive soon as the markets rebound. There are several developments that could still change the current sentiment-

1. The threat of Anthrax or other terrorist attack
2. Results that come in worse than expected
3. A reversal of the recent good economic figures
4. Higher unemployment

Sir John Templeton recently said the following in an interview:

"Since we never know when the bottom is, its probably best to aim at having never less than 50% of your money in stocks on a worldwide basis and the other 50% will sometimes be in bonds and sometimes be in stocks. So even though the odds are that we will see lower share prices in America and other nations, I still think you can hold 50% in well-managed portfolios
worldwide of common stocks."

Please refer to recent US stock recommendations.

US Technology

On a week-on-week basis, the NASDAQ Composite Index gained 6.1% to 1703. So far, the index has recovered close to 22% from the year-low established on 21 September 2001. For the week ahead, we believe the continued up-move towards the 1750 level may encounter some resistance as investors turn cautious ahead of company earnings releases. As such, we are not eager to chase equity prices up during this time. Rather, we suggest to let the expected volatility die down a little during the week before accumulating technology stocks.

Yahoo! Inc (YHOO US $12.50 CSFB rating: HOLD) reported net revenues totalling $166.1 million for 3Q01, a decline from $295.5 million for the third quarter of last year. The company is expecting its 4Q01 revenue to come in the range of $160-$180 million, lower than analyst expectations of $190 million. With the online market in a deep slump showing no signs of revival, we believe the company continues to face serious challenges -- as online advertising sales still accounts for 80% total revenue. Though YHOO is attempting to enhance its revenue streams, the company has made little enhancements in diversifying its revenue inflows. The company has moved towards subscription based "premium services" and is charging customers for extra mailbox storage space. Though YHOO is suffering from the troubled advertising market, it is still confident it can meet current estimates (operating profit of 5cents a share) for the full year. YHOO is presently trading at 8.23x price-to-sales. We recommend investors to avoid the stock for the time being.

Not surprisingly, Sun Microsystems Inc (SUNW US $10.04 CSFB rating: BUY) joined the group of companies blaming the September 11 terrorist attacks for a wider than expected loss with revenues ranging from $2.7-$2.9 billion (results were below expectations of $3.5 billion for the quarter).