Use the current weakness to build up positions in Adecco, Allianz, Arcelor, Aventis, BNP and SAP.

US Stocks

General Electric Co. (GE, $31.14, CSFB recommendation: Buy) reported April orders declined more than 20%, in line with expectations. The combination of fewer gas turbines orders and lower commercial aircraft engine orders combined to offset improving trends in company's short-cycle business and services growth. We remain positive on the company and believe that at current levels this is an opportunity to invest in a core holding for the long-term.

Pfizer Inc. (PFE, $34.60, CSFB recommendation: Buy): an American Psychiatric Association meeting provided solid evidence on Pfizer's on-going central nervous system franchise strength, particularly with the emergence of Pregabalin as a potentially new therapy for use in generalised anxiety disorder. Pregabalin's NDA should be filed this year, positioning as a significant new product for use in epilepsy, neuropathic pain as well as anxiety. CSFB expects $2 million in sales potential. Pfizer Inc. remains one of our favourites in pharma sector. Company's researches should end in high profitable products. 12-month target price at $54.00.

Boeing Co. (BA, $42.65, CSFB recommendation: Buy): Its commercial aircraft manufacturing operations will remain profitable through this down cycle and operating margin will be maintained around 6-8%. The company was quite aggressive in cutting production post September 11th. This move and the subsequent headcount reduction have proven to be the right strategic decision. The trauma faced by the national airline carriers has resulted in sizeable losses and a lack of new plane orders. Meanwhile, military aircraft and missiles systems continue to perform well despite the near total collapse in demand for communication satellite launches. Boeing Co. is in competition with Lockheed Martin Corp. (LMT) to develop and manufacture the future VLT aircraft, which promises to be the largest military contract than ever. The company has a good, diverse business, encompassing tactical and strategic aircraft and weapons and rotorcraft.


US Technology Stocks

Currently we see some nervousness among technology investors, as the tech companies are giving their 2Q guidance. During this week we will see preliminary data coming from Hewlett-Packard (HPQ US, $19.09; CSFB rating: Hold) on Tuesday, EMC Corp. (EMC US, $7.25; CSFB rating: Strong Buy), Intel Corp. (INTC US, $27.62; CSFB rating: Buy) and Intersil Corp. (ISIL US, $24.02; CSFB rating: Buy) on Thursday. The updates could lead to some volatility in the market as investors are ready to pull their money out of the sector, punishing any disappointment with a sell-off. Any good news could also lead to short bounces. We do not expect much from the mid quarter updates and expect most companies to be cautious in forecasting their numbers to avoid any shortfall at this point of the cycle.

We are seeing some indications of improvements in the fundamentals for the technology sector and believe we should have reached the trough of the cycle. The fixed line networking equipment sector has seen orders rising 10.9% sequentially, following the decline of 11.3% in March, and shipments rose 2.6% month over month to $5.8 bln, with book-to-bill ratio remaining stable, which means that orders are also improving. The same can be said for the semiconductor capital equipment companies, which as a group saw their book-to-bill ratio rise to 1.2 in April, (numbers above 1 indicating that orders outstrip shipments). This is the case for the second consecutive month, as the ratio was at 1.05 in March.

Nortel Networks has been a prominent contributor to the uncertain market environment. On May 30, it announced its decision to cut 3,500 jobs and was considering to sell its fibre-optics business. The latest cut will bring the Nortel Networks workforce to about 42,000 from 94,500 employees in Jan 2000. Nortel doesn't expect its business to improve until late 2003/ early 2004, as demand for lasers, filters and some other components for fibre-optic gear remains low due to over-capacities in the long haul area of the networks.



Europe

Weak US consumer confidence figures and another downward revision of 2Q02 euro growth were further disappointments for investors who are waiting for earnings to improve. Indeed, in the short-term we see no other incentive to build up European stocks other than a technical rebound that might be due in the days to come. Recent comments from companies regarding 2Q02 business and 2H02 outlook do not sound inspiring given the fact that the upcoming summer months are traditionally rather slow months. Consequently, we remain cautious but feel that certain stocks have overreacted in the past few weeks and might offer a good opportunity to build up positions for medium-term oriented investors. Stocks that we like at current levels are Adecco (ADEN VX; CHF 103), Allianz (ALV GY; EUR 240.80), Arcelor (LOR FP; EUR 15.21), Aventis (AVE FP; EUR 74.50), BNP (BNP FP; EUR 60.25) and SAP (SAP GY; EUR 111.76). Our preferred mid-cap stock remains JCDecaux (DEC FP; EUR 14.50).

We remain of the opinion that economic growth will pick up over the next 12 months although the timing remains uncertain. We believe that valuations of these stocks do not reflect their upside potential once economies start to improve and hence recommend buying these stocks at current levels.

Adecco came under pressure on the back of US initial jobless claims coming in above 400.000. We believe the current level offers an attractive buying opportunity for investors who want to position themselves for an improvement in the economy. During the downturn, Adecco has focused on increasing productivity, maintaining its branch network and expanding its customer base. It is well placed to take market share when the market bounces. Adecco estimates that a 1% increase in GDP would lead to a 7% increase in temp volumes. Past experience does confirm that following recessions the market for temporary staff does bounce strongly. For example, in 1992 volumes increased by 20%, in US.

Adecco sees significant growth in the Adecco brand from continued market growth and increased market share. Penetration of temporary services is still quite low at around 2% on average. Some countries such as Germany and the Japanese market have penetration below 1%. As these markets become increasingly liberalised over the next decade, penetrations are likely to increase. CSFB estimate that if we take an optimistic view of increased penetration over the next decade, the global market could grow at around 8%. A key bull point is that Adecco does look very well positioned to take advantage of any upturn. Over the last year, it has reduced costs but maintained its branch network. It has also worked hard to expand its client base during the slowdown and has gained market share in most key markets.

After the heavy losses in software stocks over the past weeks we believe that SAP is close to a bottom and has sufficiently priced the recent management changes in the USA and the weak software environment there. Over the past two weeks, the software sector has been hit by one of the largest number of earnings downgrades. We believe that the pessimism in the sector is overdone if we adopt a 12-month view, as corporate spending is likely to pick up in 2H02. As things are darkest before dawn and SAP's valuation looks attractive in a historic view we would use the current weakness to pick up the stock with an investment horizon of 12 months. Given the current uncertainty a short at-the-money put strategy is an attractive alternative to an outright purchase of the stock, in our view.

JCDecaux held its AGM last week. The management confirmed that it was raising its target organic growth for 1H02 in street furniture advertising from 2% to 3.50% in line with 1Q02. We think this is good news and illustrates this business's relative resistance to the current advertising slump. The company also removed concerns that the street furniture contracts recently won (L.A. and Chicago) were not profitable and reassured investors that growth (by bidding for concessions in N.Y. in 2003 and London in 2005) would not be achieved at the expense of profitability. We continue to like the business model of JCDecaux and reiterate our buy recommendation for investors who seek diversification.