Volatile markets (page 1 of 3)

Apart from the FOMC meeting the release of business confidence indices in France (INSE) and Germany (IFO) will be the market's key focus for the week. We expect the FED to leave interest rates unchanged.


US Markets


Last Friday we recommended Electronic Data Systems Corp. (EDS, $17.79, CSFB recommendation: Outperform) for a trading idea after the company announced its third quarter profit will be a fifth of what it had forecasted. This sharp reduction is due to lower spending on computer service, and contracts from corporations. We believe corporate IT spending would continue to be weak as long as companies' earnings stay weak. Nevertheless, the 52% price decline is over-done. Trading buy

With these volatile markets, we believe gold mining stocks could offer an alternative to investment portfolios due to its negative correlation to the major stock indices. Gold mining companies continue to reduce their hedge books, in expectation of higher gold prices. We like Placer Dome Inc. (PDG, $10.45, CSFB recommendation: Not covered) - Buy. Valuation is attractive, and stock has a beta (vs. the S&P 500) below 1 (0.02), and a negative (-0.513) five-year correlation. Placer Dome's balance sheet is relatively safe, with a debt/equity ratio of 56.07% and a debt to assets of 29.42%. Like the sector, the company reduced its gold hedge book over the past weeks, which lifts off some costs related to the hedging and gives a bigger leverage to the gold price. PDG announced an extension of its take-over offer to shareholders of AurionGold to October 2nd. So far, the company reached 42.5% of AurionGold (source Merrill Lynch). Though the company is facing unrest at its Papua New Guinea Porgera gold mine, we believe once the current vandalism is under control, earnings would recover. The company cut Porgera's production forecast by 120,000 ounces to 560,000. Finally, company's copper production currently runs on low margins, due to historically low copper prices. An improvement in copper prices or reduction in production costs would be an added bonus.

Citigroup Inc. (C, $26.83, CSFB recommendation: Outperform) stock price is under pressure due to concerns on its profit forecast. Analysts are lowering their earnings forecast for 2002 and 2003 and we believe this downgrade is not over. Citigroup's earnings would be hit by a weaker-than-expected Global Corporate and Investment Bank (GCIB) business. Nevertheless, we wish to reiterate that Citigroup's finances remain sound and the company would remain profitable due to a well-diversified business. The company has more than $1 trillion in total assets, and management has demonstrated that they can deliver 16% p.a. growth in the past 5 years. Nevertheless, our hold recommendation still stands due to the unsettling market condition.

General Dynamics Corp. (GD, $83.02, CSFB recommendation: Neutral), which announced two weeks ago the addition of three new aircraft to its business jet line, expects profits will be upheld by its new Gulfstream business jet and strong military business. With a P/E of 17x, compared with the P/E of the aerospace & defence sector (22x), GD stock price is trading at a 22% discount and current sell-off is overdone. The spectre of war has reinforced our Buy recommendation in spite of concerns related to civil aviation weakness, which could pressure stock price in the short term

Boeing Co. (BA, $36.48, CSFB recommendation: Outperform) avoided a strike from its machinists union, contract with its second largest union, the Society of Professional Engineering Employees in Aerospace (SPEEA), will expire but in December '02.