We added BNP Paribas to our recommendation list with a price target of EUR 65. (page 1 of 2)

US Stocks

The Bank of New York Company, Inc. (BK, $34.84, CSFB recommendation: Buy) was upgraded by CSFB from Hold to Buy. Although the current operating environment is challenging, - stock market activities have not picked up - custodian fees provide a stable source of income. We are positive on the company due to the attractive stock price (P/E 17.42x).

Furthermore the company has good quality earnings from pension administration fees. We think that BK will benefit from ageing population, the increasing globalisation of investment portfolios, mounting pressure on pay-as-you-go pension systems and the increasing complexity of investment strategies. Finally, once markets stabilise and volume growth resumes, BK's revenues should increase significantly. 12-month target price at $42.00.

Concerning an eventual bankruptcy of Worldcom Inc. (WCOM, $1.58, CSFB recommendation: Sell), we wish to clarify the current situation. The market evaluates stock at chapter 11 level due to interest expense and debt reimbursement. The company will have to repay $60 million in 2002, $2.6 billion in 2003, $2.5 billion in 2004 and $2.25 billion in 2005. This represents 22% of the total liabilities. Total debts represents 30% of capital structure with a cost of debt at 4.86% and an annual interest expense of $1.36 billion.

On the other hand, the company presents a positive cash flow and $1.41 billion in cash. Furthermore it has an undrawn bank credit line of $8 billion. We think Worldcom Inc. should be able to meet debt payment for this year and next. Nevertheless, the company was downgraded few days ago to Ba2 because Worldcom Inc had to pledge assets in return for $5 billion of loans.

Finally, comparing Altman's Z-score, a method indicating the probability of a company entering bankruptcy within the next two years, Worldcom is not the worst of the telcos. In fact, Qwest Communications Ltd (Q, $5.04, CSFB recommendation: Hold) and Sprint PCS (PCS, $9.74, CSFB recommendation: Buy) both have lower ratings than WorldCom.

US Technology Stocks

On a week-on-week basis, the NASDAQ Composite Index declined marginally by 0.75% to 1600. Nevertheless, the week was volatile with wild swings in trading activities that took the index up 5% (to 1696) and then down 8% (to 1560). Bullish investors and event-driven traders appear to be running out of hope, buying strongly on any piece of near-term (1 week) good news regardless of any short-term (1-3 months) potential earnings growth obstacles. We believe the index continues to carry a downside risk towards 1387 (-13% potential). We remain cautious about buying technology names ahead.

Cisco Systems (CSCO, $15.42, CSFB rating: Buy) reported positive April-3Q02 results with revenues that came in line with expectations and EPS of $0.11 exceeded estimates of $0.09 a share. What surprised the market was the company's ability to deliver better-than-expected gross margin of 63.1% (CSFB estimate at 57.6%). In terms of guidance, CSCO provided flat to slightly higher quarterly sequential revenue forecast for the present July-4Q02 and reiterated that IT spending remains restrictive and demand visibility limited.

Nevertheless, CSCO also believes orders in July has the potential to grow 5% on seasonality alone and that a growing percentage of customers have plans to potentially increase budgets in the 2H02 (rather than 1H02). While the latter half of the calendar year does indeed offer a more attractive scenario for company revenues to pick up, we do not recommend to buy CSCO shares at current levels.