Still cautious on US Tech, buy on dips (page 1 of 2)

US Stocks

Alan Greenspan will appear before the US Senate Budget Committee to testify on the economy on Thursday. Over 150 companies will be reporting their quarterly earnings this week, and half of the DJIA component stocks will also be reporting this week.

The market should remain volatile, the FOMC meeting will be at the end of the month. The Chairman's view on the economy thus the monetary policy moving forward will be more important

Addition to the watch list, Citigroup Inc. (C US), which announced 4Q result better than expected. We expected on April 16th, 2002 an EPS 7.4% higher than the last one representing the 3rd consecutive growth The company has a global franchise well-balanced product segmentation. Is a good buy below $44.

The Gap Inc. (GPS US). is near its 52 weeks bottom. We suggest a buy below $14 for a turn around play.

CVS Corp. (CVS US). We think that the stock is undervalued and with a P/E of 15.25 the company should recover a level of $33 in the future. Below $26, the stock should be very attractive for a long-term investment.


US Technology


Intel, Compaq and Microsoft have reported last week, sending out some mixed signals. All of them have been quite cautious in stating their forecasts implying a slow corporate spending increase. Referring to the outlook given by the PC related companies, replacement cycles seem to become longer. This rises some more questions about a possible recovery of the sector, till now expected to happen by the third quarter of this year. Now, as a matter of fact, the downturn should be over. This is somewhat reassuring, but the shape of the recovery is the name of the game.

Talking about the recovery curve, we might have to expect a slower pace. It will neither be V-shaped nor U-shaped, but probably wide U-shaped. Even if there are some parameters that should support a recovery, like low interest rates or even the strong long-term fundamentals for technology as such, the NASDAQ Composite will stay in a trading range between 1500 and 2400, giving us some decent trading opportunities. All in all there is no fundamental reason that could provide a sustainable increase in the NASDAQ just right now. We would indeed not be surprised if the index goes back to the 1800 levels in the coming weeks due to some more uncertain outlook statements throughout the earnings season.

On this point of view we advise investors to keep their average technology investments as low as possible and to buy on dips in accordance with our forecast of share prices staying within trading ranges.

We would like to focus a bit on the software sector. Even if we do not expect software companies to raise guidance for the next quarter, especially not for the business application software (due to seasonal patterns), this sector should outperform the rest of the technology sectors helped by the strong earnings momentum on relatively high gross margins software provides. If an investment in technology has to be made we would favour the software sector and, in particular, security software. Network security companies are expected to present solid Q4 results pushed by increasing demand for security infrastructure. Verisign, which is on our recommendation list will report on January 24th (First call est. $+0.19). Another company we like is Checkpoint Software, but we would like to see the stock bottoming out before we consider buying it.


Europe

Optimists that had hoped that the 4Q01-reporting season would provide evidence of an earlier recovery of corporate earnings were disappointed last week.