Short-term cautious on the Tech sector (page 2 of 2)

The PC market in China should continue to grow well and support Dell's growth, but the company has to undertake the strategic steps to diversify further away from the PC into other markets, as the Chinese PC market is set to become mature more mature.

Dell Computer in this perspective looks quite attractive for a long-term investor. There is still genuine potential for growth in the storage market, as soon as corporate IT spending starts to pick up.

In the very short term we would like to see the stock consolidate, as we believe the 10.8% share price increase in Friday's session after the earnings release already discounts most of the near term growth. We have to keep in mind that the guidance coming from different semiconductor makers and semiconductor capital equipment makers is very cautious and does not indicate a strong replacement cycle. Therefore we have to remain cautious towards the computer industry, and take this into account when looking at Dell.

Europe
• The DJ EUR Stoxx 50 closed the week with a 3% increase to 2199.97
• We added Societe Generale to our recommendation list. Over half of its operating profit comes from Retail Banking, which shows the defensiveness of its earnings. Expected dividend yield 4.6%.

After falling to a new low on Thursday the DJ EUR Stoxx 50 posted some relief gains and managed to end the week in positive territory after the speech of UN Weapon Inspector Hans Blix indicated that war will be delayed.

Although markets might enjoy some more days of relief, we believe that fear and uncertainty of war will soon return. Despite the often anticipated after war rebound in economic recovery, we believe that a careful interpretation of fundamentals shows a different picture. Therefore, for stock selection, we remain cautious and continue to favour stocks which pay an attractive dividend yield such as BNP Paribas (BNP FP, EUR 39.15) or ENI (ENI IM, EUR 13.495), stocks in sectors which show positive earnings momentum such as VOD LN (VOD LN, GBP 1.15) or stocks which distinguish themselves by either gaining market share from its competitors such as SAP (SAP GY, EUR 83.10) or by having a unique business model such as JC Decaux (DEC FP, EUR 10).

JC Decaux is the only pure outdoor advertising play - an area, which in general suffers less in a downturn. They are the leader in street furniture which offers high visibility and high margin. In addition we like its unique business model, which focuses on long-term contracts and gives them even some pricing power. JC Decaux wins around 70% of the concessions it bids for and has an 81% renewal rate, which shows the potential for future growth.

JC Decaux reported an increase of 2.2% of its 2002 sales figures to EUR 1,578m which was slightly better than its guidance and CSFB's expectations and we believe the overall numbers are comforting in the current advertising downturn. Growth was supported by a solid performance of the street furniture (+5.3% organic growth yoy) and the billboard businesses (+2.8% yoy).

Given its unique concept, its valuation is difficult to compare. The stock currently trades at a discount to Clear Channel (CCU US, USD 35.93) - US advertising company with an exposure to outdoor advertising as well (JC Decaux at PE and EV/EBITDA 04 of 17.9x and 6.2x vs. Clear Channel of 24.3x and 12.12x). We believe a premium is justified due to its better resistance to economic downturns and better visibility which makes the stock more defensive.

After Societe Generale (GLE FP, EUR 52.85) reported 4Q results, which were in line with expectations on an operating level but significantly better if adjusted for restructuring charges, we added the stock to our recommendation list.

The stock came recently under pressure after BNP Paribas ruled out an immediate take over of Societe Generale. We see the weakness as a buying opportunity for an investor with a 12 to 18 month time horizon. However, given the current uncertain environment we would advise to accumulate the stock in stages. Societe Generale is trading at a 6% discount to the European sector and comes with an attractive dividend yield of 4.6%.

We like the defensiveness of Societe Generale's business as around 56% of its operating profit comes from the Retail Banking. Although having a Tier 2 position in numerous corporate & investment banking businesses, management has successfully developed a franchise in some high-growth niche products such as equity derivatives and alternative fund management which adds to the diversification of its earnings.

Further more, after the final acquisition of Credit Lyonnais (CL FP, EUR 53.9), Societe Generale will become the next take-over target in the French banking sector, although a final acquisition still might be some time away.