Still conservative on technology stocks (page 4 of 4)

Syngenta remains our sector favourite as the agrochemical industry is driven by factors unrelated to industrial production is hence is more resilient to recessionary environments.

Lafarge (GL FP; EUR 100.70) reported 9-month sales figures slightly above expectations at EUR 9.769bln. The good news was the detailed expectations for the profit attribution of Blue Circle. Lafarge initially expected Blue Circle to generate synergies of EUR 100 million in the years of 2002-2004. The company now expects 107.5 million for next year, 172 million in 2003 and 215 million in 2004. We believe that this will enable Lafarge to generate EPS growth that is about twice as strong as the sector average. We think that the current premium of approx. 15% to the sector does not warrant this well enough. We remain buyers of the stock.

Pechiney (PEC FP; EUR 49.52) reported an increase in 3Q01 net profit of EUR 56 million, which was broadly in line with expectations. The company expects operating profit to remain close to last year's level excluding the effects of aluminium prices and the EUR/USD exchange rate. Pechiney expects the recovery of aluminium prices to take longer than previously expected but believes that most of the bad news is in the price now. We continue to rate the stock hold. Pechiney is an attractive and inexpensive play on the economic recovery. Things can hardly turn worse from now. However, as long as we see no evidence of a sustained economic recovery the stock might go sideways. We lower our price target to EUR62.

Results from GlaxoSmithkline (GSK LN; GBP 18.67) were right in line with expectations posting an EPS of 5.8 pence. The quality of the outcome though is higher than anticipated due to the lower than expected contribution from other operating items. The group's pharma revenue growth of 13% remains in the upper quartile of the industry. However, during the press conference there was some confusion over the launch timing of Dutasteride, a drug for prostate enlargement and the discontinuation of GI262570, (diabetes), which has been dropped for its potential use but may still be developed rapidly for other uses. This might cause the stock to remain under slight pressure in the short-term. We continue to see the stock as an attractive defensive growth holding as the company offers secure growth, which cannot be said of the overall stock market.

Serono (SEO VX; CHF 1400) declined 6% in very volatile trading after the company's PR firm started calling analysts enquiring about their estimates for 3Q01 figures, which are due to be released on October 30, 2001. The company denied the rumours that it might report lower than expected earnings due to lower financial income. We believe the underlying business remains very strong and hence we consider the current weakness as a buying opportunity. We would buy half the position in the current weakness and the other half after the results are out. Alternatively selling a Put Dec. 1400 at a price of CHF 90 would result in a cost price of CHF 1310.