Stocks to buy in the US in the anticipated correction (page 1 of 4)

US Stocks

We shall see whether the past 3-½ month rise in share prices is justified given the outlook for profits. The recommendation is to look for values after any significant corrections and accumulate stocks with proven track records and franchise that offer an investment return of 10% or better in the next 12 months.

The stocks on our watch list are:

Disney (DIS $21.87) - with mounting debt and plummeting cash flow, management is increasingly under pressure to turn the company's fortune around, if they cannot deliver, it will not be a surprise that Disney will be a takeover target. Using normalized earnings of $0.82, the P/E of Disney is around 26x at current price, and P/B is less than 2x. Therefore, we would suggest accumulating the stock between $18 to $20.

Exxon Mobil (XOM $38.50) - the current EV/EBITDA is 8x, its return on capital continues to be over 2x the weighted average cost of capital. Historically, oil prices have been in the range of $18 to $22, and current oil price is at $20. The levels considered to accumulate the stock are at or below $36.

Dupont (DD $43.02) - after a disastrous venture into genetically modified food, the company is refocusing on its core competency of polymer chemistry, which brought us nylon, Lycra, Teflon, & Kevlar, with a new focus on bio-based materials. The company is putting effort to combine traditional chemistry with biology to create new bio-based materials. That is combining basic chemical processing capability and fundamental engineering skills together with genetics to create new technology platforms. See a good buying opportunity in the $36 to $38 range.

JP Morgan Chase (JPM $38.34) - price will be plagued by the failure of Argentina and Enron in the short term. CSFB expects JPM's risk related to Argentina is now in the range of $1billion-$1.5billion, and $2.6billion in Enron. The total is less than 0.5% of its total asset. JPM will recognize $455 million losses in the 4Q, when it reports on Jan-16-02. Current expectations are low, and is a recovery play once the capital markets and economy pick up. Buying range $32 to $35.


US Technology


Last week's trading activities were largely dominated by news in the semiconductor industry. While the news were fundamentally positive, semiconductor stocks sold-off as investors locked-in short-term capital gains. On a week-on-week basis, the Philadelphia Semiconductor Index fell 3.5% to 568.89 on profit-taking from the previous week's strong 9.4% up-move. We believe the memory segment within the semiconductor industry is still in a consolidation phase, with demand and supply issues showing signs of stabilising. Encouraging developments within the industry include a potential agreement between Micron Technologies (MU US, $35.13, CSFB rating: Hold) and Hynix Semiconductor (0066 KS, Won3,165, CSFB rating: Hold) that is viewed as positive as the global supply of memory chips will be further streamlined and controlled by a few major producers (thus avoiding excess supply). Also, with the unexpected up-tick in demand for memory chips, investors have begun to focus on Samsung Electronics (0593 KS, Won306,000, CSFB rating, Strong Buy) to see if the company will be successful in increasing contract prices again. Conclusion: Turning slightly positive on the sector.

Our stance towards the technology sector remains unchanged. We are still cautious. The next two weeks earnings season will provide some indications on which business is recovering and which requires more patience.