Rally for the last week has been overdone (page 1 of 2)

US Technology
For the week ahead, we expect investors to adopt a more cautious buying strategy ahead of the Fed's meeting on Tuesday (11-Dec-01).

Good news from Intel Corporation's (INTC US $33.24 CSFB rating: HOLD) mid-quarter update sparked a rally on Wall Street. Consensus estimates were expecting Intel to report earnings of 10 cents a share on sales of $6.2 to 6.8 billion, while the company unexpectedly raised its revenue guidance to $6.7 to $6.9 billion for the current quarter, 4Q01. The bullish expectations on Intel's revenue growth for the quarter was derived mainly from the outstanding results in rolling out it's Pentium 4 chip into the mainstream product line. With low microprocessor chip prices, higher processing (1.8 ghz) speeds, the launch of Windows XP and unanticipated higher orders during the holiday season, have provided credible reasons for the company to post strong results for the current quarter. However, we believe INTC's positive turnaround in expected results has mostly been priced in to the company's stock price already. INTC is presently trading at 8x price-to-sales and 6x price-to-book (Bloomberg). As such, we do not suggest to "chase" after the stock at these levels but would prefer to accumulate the stock on price weakness below $28.00.

Cisco Systems Inc (CSCO US $21.16 CSFB rating: BUY) brought good cheer to investors as well after CEO John Chambers reported that the company's November orders met expectations. He added that he expects the firm's core networking market to expand in 2002. Consensus estimates were expecting CSCO to post earnings of 5 cents a share on revenue of nearly $4.5 billion for 2Q01. Although John Chambers delivered encouraging news, he also tempered optimism on the firm's future outlook with continued caution, as the current slow economic condition still left the company with low visibility. With restricted demand vision, along with the current weak economy, CSCO adopted to continue focusing on controlling its profits, cash flow and productivity so as to help position the company to grab further higher market share in the periods ahead. CSCO is trading at 7.8x price-to-sales, and 5.6x price-to-book (Bloomberg). Buy CSCO on profit-taking days at around the $16.50 level.

Sun Microsystems Inc. (SUNW US $13.39 CSFB rating: BUY) reported that its fiscal second-quarter sales were on target to meet expectations for 2Q01. Revenue would be up modestly from the previous quarter of $2.26 billion. Although business appears to be improving slightly in the current quarter, the company also mentioned that chances of returning to profitability may be slim until the second quarter of 2002. The company is expected to report revenue of $12.8 billion with EPS of $(0.09) this fiscal year, down from previous estimates of $13.1billion (EPS of -$0.04). Again, details for the current quarter remains limited due to the soft economic condition. We would be comfortable accumulating the stock for a 12-month investment period below the $11.00 level.

Europe
After a two-week consolidation in the technology sector it was some relief to the market that companies such as Cisco, Intel, Oracle and AMD confirmed that their businesses were doing according to plan and reassured investors of credible signs for a stabilisation in the business. This is good news for the industry. However, at this point in time we believe that this is well priced and expect some profit taking in the days ahead.

Despite our more optimistic longer-term outlook for these stocks, this market continues to offer good trading opportunities.