Maintain a conservative accumulation strategy.

US Stocks
Apple Computer Inc. (AAPL $24.41) - the stock has out-performed the S&P500 Computer Hardware Index since the beginning of the year (+4.76% vs. -7.71%). Its new Mac OS X operating system has been handling business tasks since the arrival of Microsoft's Office version X for Mac in last November.

Recently, several video and audio programs have come to the market, which is playing to Apple's strengths in video editing, and music & audio production. This should be positive for its sales, particularly among the TV, music, and film studios. The company continues to recover from the disastrous introduction of Cube a year ago, and is concentrating on re-capturing the educational market. Our target price is $28, which has another 14% upside. The stock remains a Buy.

On the contrary, Waste Management (WMI $25.13) took a beating last Friday, management trimmed 4Q profit estimates. The company will report 4Q results on Feb-26-02, IBES est. $0.315 vs. $$0.060 y-o-y. The reason for the shortfall is that the previous estimate included a pretax gain of 7 cents for insurance settlements. Excluding the non-recurring gains, the EPS will be lower to $0.245. With the specter of Enron hanging over the market, the stock price dropped 13% with volume 10x more than the 3-month average.

Moody's has also reduced its outlook on WMI from positive to negative (Ba2), but S&P maintains its BBB rating. WMI has just emerged from a 3-yr probe on the company's accounting irregularities, and is unlikely that the new management will risk another federal investigation. The problem is that margins are still under pressure because management is slow to cut costs. Current price levels already assuming its operating cash flow will drop by 25%. Accumulate on weakness. Lower stop-loss to $22 and target to $34.

Next up is Celera Genomics; its 2Q losses are larger than expected (including acquisition expense). The company is making a transition from the database business to drug discovery stage. This year will be a year of consolidation, where CRA will focus on building its internal capabilities, projects like proteomics (study of proteins), and integrating the acquisition (drug discovery). New products are not expected until 2003/2004, and profitability in 2005/2006. Is a long term Buy. Lowering stop-loss to $19.00.

Schlumberger (SLB $55.20) has gained 20% since recommendation at $45.65, is about 3% from our target of $57, suggest client to reduce holding to take partial profit.

Recommend taking profit on Hospitality Property Trust (HPT $30.15), Park Place Entertainment (PPE $9.73) & Public Storage (PSA 6.98) for a profit of 18%, 17% & 10% respectively.


Worthington Industries (WOR $14.80) stock price near our target of $15, take profit - the gain will be 18%.

Putting American Int'l Group (AIG $73.25), JP Morgan Chase (JPM $ 32.16), and Applied Biosystems Group (ABI $23.72) on the buy list. Earning concerns have put pressure on AIG's stock price recently; do not see any fundamental problems. Company reporting 4Q on Thursday (Feb-7-02), consensus is looking for $0.784 per share. Moving forward, firmer rates should enhance revenue growth.

The stock price of JPM has fallen to the low end of our buy range of $32 to $35; we are putting the stock on our buy list. As of Dec'01, JPM's non-performing assets to total assets is only 0.87%, way below the industry threshold of 2%. Furthermore, commercial loans only account for 10% of JPM earnings these days.

Applied Biosystems Group was recommended back in October 01 at $27.00 and took profit at $33.00. The current level is lower than our previous recommended level. We think it is an attractive level to buy it again.

WorldCom will be reporting its 4Q this Thursday (Feb-7-02); we will have a better assessment of the situation, and will keep you posted. Corning will be having an investor meeting the next day (Feb-8-02) at 9:00 am NY time. Accumulate on weakness.

US Technology
4Q01 was an unexpected price rallying period. Stocks appreciated close to 43% (from the year-low at 1387). While our view towards the technology sector is improving gradually, we believe last quarter's rally will not be sustained over the short-term. Instead, we anticipate the 1Q02 period to be a consolidation phase in which investors review their holdings and take some profits. We believe there are good reasons for investors to be risk adverse at the present time - current valuations are expensive relative to the lacklustre forward guidance, and demand visibility on all business fronts remain limited. As such, we remain patient and continue to adopt a conservative accumulation strategy.

Investor buying sentiment last week was dominated by Global Crossing's (GBLXQ: $0.117) unexpected filing for Chapter 11. After having seen a number of such filings lately, investors have started to shift their worry towards technology companies' balance sheets. Telecom Operators were especially subjected to such scrutiny as the sector has historically invested tremendous amounts of capital in expanding their networks (so as to be able to face the expected growth in data transfer) and subsequently carry a huge debt burden. WorldCom (WCOM: $9.61) Qwest (Q $10.00), Sprint (FON: $17.22) and Verizon (VZ $46.60) came under pressure following the Global Crossing filing as well.

Europe
The 4Q01 earnings reporting season is well advanced and the individual figures confirm that it is indeed very dark out there. However, despite all the gloom there are some truly encouraging signs that make us confident that earnings might finally start to recover. The FED left interest rates unchanged, the German IFO Business Confidence Index posted its third consecutive rise in January, the US GDP figures and the NAPM show signs of recovery and the outlook statements of companies reflect more optimism than in the past months. In fact, after 70% of the US companies reported earnings pre-announcements for 1Q02 are currently more than 30% below those of the second, third and fourth quarters of 2001.

Reported earnings show an average decline of 22% in 4Q01, which is 1.1% less than expectations. Tech sector earnings were the biggest surprise with 24% above the final estimates while energy came in 8% short of expectations. Rather than looking at the numbers we look at the trend and feel encouraged by the improvements. Even though these are USA figures the trend in Europe will be the same with a certain time lag. Additionally, valuations are clearly in favour of European stocks. Stock markets tend to anticipate a recovery in advance. We expect the trend of better news to continue in 1Q and especially in 2Q and reiterate our barbell strategy of selective cyclical and technology stocks. Despite volatility to remain high investors should use the current period of weakness to position themselves for better time ahead.

Our preferred cyclical stocks are Syngenta (SYNN VX; CHF 94.50), Stora Enso (STERV FH; EUR 15.15), Usinor (USI FP; EUR 13.55), Pechiney (PEC FP; EUR 61) and TPG (TPG NA; EUR 24.74). Among technology stocks we remain buyers of the semiconductor stocks such as Infineon (IFX GY; EUR 24.79) and ASML (ASML NA; EUR 22.10), and Nokia (NOK1V FH; EUR 27.26) as our play on a recovery in the telecom equipment sector.

Serono (SEO VX; CHF 1415) opened the last week with a sharp drop on speculation by an analyst that patients taking Rebif (multiple sclerosis drug) developed hepatitis or other liver complications. Management and several analysts immediately denied these allegations. Potential liver damage is an issue with all beta-interferon products. However, it is important to note that the patient who required liver transplant was not on a high dose of Rebif. He was also on the anti-depressant drug Serzone, which has been associated with 23 cases of liver failure. More than 30000 patients outside the USA have been treated with Rebif for many years with no cases of liver failure requiring transplant being reported.

Serono's volatility remains linked to the Rebif approval over the next few months and certainly there are reasons to doubt the early FDA approval this year. But even if it does not happen this year Avonex's orphan drug status expires in 2003, which will give the green light for Rebif to be launched in the US market. We view the current weakness as an opportunity to build up positions in Serono being aware that the next few months could be bumpy. The stock recovered quickly from the early losses and closed the week almost unchanged.

Stora Enso (STERV FH; EUR 15.15) reported a 4Q01 pretax income of EUR 249 million, which was above consensus. Overall the individual divisions performed in line with expectations. As mentioned above it is the outlook that counts with cyclical companies. We believe that the stage is set for a strong earnings recovery. Price levels are healthy and inventory is low throughout the supply chain. Any pick up in economic activity would have an immediate positive effect on demand and thus capacity utilisation rates. Improving utilisation rates would substantially lower unit costs due to the high fixed costs component in the industry. Stora Enso remains our top-pick among the European cyclical stocks. The stock gained 8.2% for the week.

Pechiney (PEC FP; EUR 61) posted somewhat disappointing 4Q01 results with a net income of EUR 8 million, which was below consensus. However, on the operating level Pechiney delivered more than expected. Operating income was EUR 104 million compared to a EUR 87 million consensus. In terms of outlook Pechiney gave less precise indications for 2002 than in earlier statements. However, given the improving macro news flow, the valuation discount to its peers and the benefits from the cost savings programme we believe that Pechiney has further upside potential. We reiterate our buy recommendation with a price target of EUR 67. Pechiney closed the week unchanged.

TotalFina (FP FP; EUR 165) reported earnings very much in line with expectations. The company posted a 4Q01 net income of EUR 1.4bln, which demonstrated a better performance than the other super-majors. At the operating level all results were in line with expectations. The company is not cutting down on capex in 2002 and is confident to deliver on the 10% production increase. Even though we do not expect a stellar short-term outperformance of the stock we feel confident holding on to it at current levels. However, we would us a rally above the EUR 170 to reduce the stock. TotalFina remains one of the most popular stocks in funds, which might change once the risk appetite increases. TotalFina closed the week 3.45% higher.

Vodafone (VOD LN; GBP 1.5425) reported slightly disappointing Key Performance Indicators with revenue per user (ARPU) in the UK and Germany being lower in December. This was not so much of a surprise as ARPU in December is historically lower. We expect ARPU to have reached a bottom in 4Q01. The company expects revenues per user to increase this year as further voice and data services (GPRS) will be introduced into the market.

However, the number of new subscribers, especially in Germany was disappointing. Vodafone only added 25000 new subscribers in Q4 because of the pre-pay churn effect. Despite the disappointing performance this year we remain positive on Vodafone. We are encouraged by a reasonable valuation for the undisputed global leader in wireless telecommunication, which generates strong cash flows and shows strong and growing margins. We consider the current weakness as an opportunity to buy the stock for investors with an investment horizon of 12 months. Vodafone lost 5.2% for the week.

Infineon (IFX GY; EUR 24.79) rallied further on the news that the company is in talks with Hynix about any kind of alliance. In addition to this, the sector benefited from again higher DRAM prices. In the technology sector, we overweight semiconductors and reiterate our buy recommendation on Infineon, which is our preferred stock in the industry with a price target of EUR 29. The stock gained 3.90% for the week.

The European earnings season continues apace this week with Philips, Allianz, DaimlerChrysler, Royal Dutch, Adecco EADS, Commerzbank, British Airways, Sonera, Electrolux and Dassault Systems among companies to report.