We recommend focusing on our themes especially the 'energy' and 'dividend paying' themes (page 1 of 3)

US Equities
• Recommendations update

Last week, Johnson Controls Inc. (JCI, $74.40, CSFB: Not rated) decreased 2.75%, mainly due to Ford's announcement of a 17%-reduction of its production for the second-half of the year. Currently we maintain our BUY rating, and our stop-loss level of $72. JCI has consistently reported solid financial performance, and we believe this should continue in a weak automobiles sector due to its diversified portfolio of customers. Part of the Big Three (Ford, GM, and DaimlerChrysler) accounted for 39% in total sales in 2002 (10% Ford, 15% GM, and 14% Daimler Chrysler). Its second unit, Controls Group (auto battery), which accounted for about 25% in total sales, should also be able to mitigate an earnings decline. Furthermore, car interiors are able to be modified over a few years, as opposed to other components like power-trains, which are developed to remain unchanged for as long as possible. Each model overhaul gives JCI an opportunity to upgrade interior features and add content, which helps offset the pressure on profit margins. Despite our positive stance on JCI, we believe the stock price would remain weak for the coming weeks. The shares reflect an industry under pressure, which would limit the upside in the short-term.

Recent actions by Fitch Ratings (see CS Weekly, Feb. 24) have refocused investors on the question of mortgage servicing rights (MSR) valuations. The value of MSR, an asset that is required under GAAP, differs across firms. Investors have noticed that Countrywide Financial Corp.'s (CFC, $54.38, CSFB: Not rated) MSR value, at 1.2% of the servicing portfolio, is higher than those of other lenders, such as Washington Mutual Inc. (WM, $33.53, CSFB: Not rated), with MSR amounting to 0.9%. In a scenario where CFC would have to reduce its MSR to 0.9%, Morgan Stanley estimates a target price at $69, which is still higher than our conservative target price of $61. In other terms, this decrease would reduce yearly EPS by $1.14 to $6.64 expected, based on 2001 annual report. Hence, we believe a decrease in MSR would have a negative impact on CFC stock price in the short-term, but our positive outlook on CFC' s business remains intact vs. its peers, even if the company has just announced an 8%-fall in its mortgage origination. BUY

Gold mining stocks saw further profit taking, as gold prices continued to decline and dropped on March 13 on the news that the US would consider giving Iraq more time to disarm peacefully. The issue however, has not been resolved yet and today, March 17, a tentative deadline for Iraq to disarm, is driving gold prices higher again, with the spot climbing towards the $345 per ounce levels.

The three major North American gold mining stocks Newmont Mining (NEM, $25.09, CSFB: Neutral), Barrick Gold (ABX, $14.65, CSFB: Outperform) and Placer Dome (PDG, $9.23, CSFB: Outperform), after the recent share price correction, are trading at the their lows of August and October 2002.

In this respect the stocks are looking increasingly interesting, as the fundamentals supporting the expectation of spot gold reaching prices of $425-450 during this year remain unchanged. The decline in the US Dollar makes the purchase of gold more attractive for non US Dollar investors.

We removed Placer Dome from our US Buy List at $10, as we saw that profit taking would lead to a decline, without changing our overall positive stance towards the company.