Increase the focus in Europe on the industrials

US Stocks

Apple Computer Inc (AAPL, $23.45, CSFB recommendation: hold) - Apple's stock has been weak last four weeks, owing to concerns that the company's new iMac product line isn't ramping fast enough. Checks with retailers indicate scant supply of the company's new iMac. Apple typically has problems delivering new products; all three models of the new iMac will not be in stores until Q3.

Besides, stock price is also under pressure due to concern regarding cannibalisation between iMac and G4. We remain with our 12-month target price at $28.00 because currently iMacs account for only 25% of the company's sales, but the higher ASP iMacs should increase the contribution percentage.

Boeing Co (BA, $47.84, CSFB recommendation: buy) - the company said it expected Asia to become the biggest market for commercial planes in the next two decades, with an estimated requirement of more than 5,220 aircraft in deals valued at $537 billion. We remain positive on the company with a 12-month target price at $50.00. We recommend accumulating the stock on weakness at $40.00.

Waste Management Inc. (WMI, $27.03, CSFB recommendation: buy) - WMI intends to accelerate cost cutting plans. With a high free cash flow generated in full year 2001 ($262 million expected by CSFB), the company should commence its plan to repurchase up to $1 billion of its stock this year. 12-month target price $34.00

Aflac Inc. (AFL, $25.75, CSFB recommendation: buy) - The consensus is looking for sales in Japan to meet or likely to exceed expectations, due to a strong acceptance of its new medical sickness product. The positive impact of regulation changes, and new sales techniques at corporate agencies (currently representing for roughly half of Aflac's total sales) should positively impact the bottom line. Besides the US will remain a powerful growth engine for the company. 12-month target price $30.00.

US Technology

The NASDAQ Composite made a big jump last Friday, on the announcement of the Purchasing Managers' Index better-than-expected rise to 53.1% in February from 45.1% in January - indicating an expansion.

This rise then fuelled expectations of an earlier recovery within the technology sector. The positive sentiments also boosted share prices of semiconductor capital equipment companies, which are anticipated to be the first industry group within the technology sector to experience growth from a cyclical up-trend.

Should we turn bullish on the new data? Probably not. We should still bear in mind that capacity utilisation is at very low levels of around 60%, which has surpassed historical low levels in previous downturns. Due to the lack of any new killer applications, we do expect this rate to increase gradually over the next few months. Conclusion: revenue growth for the semiconductor capital equipment segment could still lag far behind expectations.

An interesting point to watch in the coming weeks will be the possible transaction between Hewlett-Packard (HWP US, $20.21, CSFB rating: Hold) and Compaq Computers (CPQ US, $10.44, CSFB rating: Buy). According to the latest Bloomberg News update, Institutional Shareholder Services (ISS), the biggest proxy adviser, is anticipated to issue a recommendation on Hewlett-Packard's $21.9bln acquisition of Compaq Computers tomorrow after market closes (two weeks before shareholders vote on the proposed transaction). The announcement by ISS is deemed significant as their recommendation could alter shareholders' voting decisions. HWP continues to face strong opposition from Walter Hewlett (one of the co-founding family).

We believe the deal could make sense, as the volume of the PC shipments could stay at low levels as we have seen it in the past year. The logic is simply a consolidation of the business and industry. The PC industry has evolved into a matured low margin business where growth can be achieved mostly through acquisitions. Thus HWP and CPQ will be joining forces not out of a position of strength, but as challengers trying to compensate for lost market share to Dell. If the deal goes through, the two companies expect to be able to improve their profitability by consolidating their businesses and cost structures.

Oracle Corp (ORCL US, $15.99, CSFB rating: Hold) once more had to come out with a profit warning (fourth warning within the last five quarters). The company continued to blame the economic slowdown, which the company had expected previously to be short. New software license sales, mainly in Asia, were less than expected. The company's share price dropped 8.7% (falling to $14.72 in after hours) in a strong overall market.


Europe

This week's economic data have confirmed that the economic recovery is under way. After focusing on cyclical plays such as basic materials and construction materials we feel that the time is now right to increase the focus on the industrials.

We have added MAN (MAN GY; EUR 28.20) to our recommendation list with a price target of EUR 33 and a stop-loss of EUR 25. MAN AG engineers and manufactures a wide range of industrial products, production systems, trucks, buses and utility vehicles, diesel engines, power generators, printing machinery, conveyor systems and satellite technology products. Man is currently restructuring many of its divisions, which should lead to annual savings of EUR 500 million through 2004. MAN is currently traded at an EV/EBITDA discount of about 10% to the European machinery sector. We expect the weakness of the commercial vehicles business in Europe to trough this year. Allianz' 26% stake in MAN could trigger a consolidation in the industry, which would free MAN's hidden value.

Celanese (CZZ GR; EUR 22.30) is a global leader in the chemical industry and was founded on October 22, 1999, as a result of the de-merger of the main industrial activities of Hoechst. The product chains of Celanese are acetyl products (40% of sales), chemical intermediates (21%), acetate products (14%), technical polymers (17%) and performance products (8%). As one of the most cyclical companies within the European chemicals sector, we believe Celanese has displayed impressive resilience given the extremely tough trading environment in the USA. This is mainly due to a very strong management team that has opted to manage the business for cash rather than for top-line growth, which has been a common industry practise in the past. We are impressed by Celanese's ability to generate cash in this difficult trading conditions resulting in a debt reduction by EUR 309 million to EUR 832 million. One of Celanese's main attractions is its valuation. Celanese is currently trading on a 2002E EV/EBITDA multiple of 4.3x, which reflects a discount of about 53% to its closest US competitors. Investors must be aware that Celanese is a small cap with a market capitalisation of EUR 1.1bln and rather low liquidity. We are looking for a price target of EUR 26 and set a stop-loss at EUR 19.50.

Our recommendation on LVMH (MC FP; EUR 54.25) is based on two investment points. This is the recent sale of its stake in the loss making auction house Phillips and the stock's attractive chart-technical pattern. We set a price target of EUR 63 and a stop loss of EUR 45. On February 20, 2002, LVMH announced the disposal of its stake in the auction house Phillips. This was unexpected and should trigger earnings upgrades for the stock as this unit was expected to post further losses this year after a deficit of EUR 130 million in 2001. The sale of the Phillips stake demonstrates the company's desire to focus on luxury goods and optimisation of profitability. The stock has been hovering in a range of EUR 43 - EUR 50 since mid-November. LVMH has broken the 200-day moving average and momentum is turning positive. With earnings upgrades coming due we do not believe that the stock is very expensive compared to its peers. LVMH currently trades at an EV/EBITDA 02E ratio of 17x, compared to an industry average of 18.7x (CSFB estimates). Given its undisputed leader position in the industry we feel that this discount is not warranted. The risk to LVMH is clearly skewed to its Japan exposure. LVMH's Japan exposure is the highest among the leading luxury goods companies. The yen and the destiny of the Japanese economy are the main risks investors in LVMH have to face, in our view.

We have added Allianz (ALV GY; EUR 259.05) to our recommendation list with a price target of EUR 300 and a stop-loss of EUR 229. The European insurance sector is the worst performer among the 15 non-TMT Euro STOXX sub-sectors in 2002. The sector has given back almost half of the gains made in the post-September 21, 2001 rally. Increasing credit risk on the back of the Enron and Argentina debacle, deteriorating balance sheets and a steeper yield curve have been the main drivers of the recent underperformance. After this week's testimony from Greenspan we feel confirmed that interest rates will not increase significantly this year which should ease the pressure from the steeper yield curve. Valuations of insurance companies have reached attractive levels and as such we consider it a matter of time until the market will shift back to the sector. We prefer Allianz because of its attractive valuation as well as for its business mix. The company is well diversified with strong exposure to the life and non-life insurance market and offers a wide range of financial services.