We continue to like high yield, low valuation and low-beta stocks (page 3 of 3)

What it can do is to limit the downside. Therefore, given the current economic environment we believe we need to see a correction and would advise investors to be nimble and to take profit whenever possible.

Hence we decided to take profit on Societe Generale (GLE FP; EUR 55.35). On the back of BNP Paribas' good earnings results the stock reached our target price of EUR 58 and although we continue to like the company from a fundamental point of view, we would prefer to protect our profits of 15.8% (20% including dividends) since mid February 2003, and have decided to take the stock off our recommendation list. We will wait for lower levels to re-enter.

BNP Paribas (BNP FP; EUR 41.55) reported net income of EUR 962m, which was well ahead of analysts' expectations. The main difference came from stronger than expected performance from trading income in the wholesale and investment banking business. As we have seen from many US banks the fixed income divisions did very well, but in addition BNP referred to equity derivatives to explain the surge in income.

Despite the difficult environment, a sharp decline in the Dollar and a challenging comparison to strong 1Q02, BNP managed to post a net banking income of EUR 4513mn, which represents an increase of 2.1% compared to 1Q02 and is the group's highest quarterly net banking income since its inception.

On the provisioning front, group provisions came in at EUR 339m, which includes a provision of EUR 85m to the general reserve in the US. Credit quality did not deteriorate. Cost income ratio stands at 63.3% and annualised return on equity was 14.4%.

We believe this was a sound set of result, which confirms our buy rating.

Further earnings report came from our two preferred energy stocks TotalFina (FP FP; EUR 125.5) and ENI (ENI IM; EUR 13.284).
Total, which changed its name from TotalFina, reported a 49% increase in net income to EUR 2.12bn for the 1Q, coming in at the top end of analysts' forecasts. EPS excluding non-recurring items rose by 55% to EUR 3.28. The favourable oil market environment, higher oil prices and a rebound in European refining margins more than offset the impact of an 18% decline in the US Dollar against the Euro and the continued weakness in Chemicals.

The upstream division achieved its target return of a 5% growth in hydrocarbon production and at the same time the group was able to report a 17% return on average capital employed over the last 12 months. Investors were concerned that the company may not be able to achieve its 2005 target ROACE of 15.5%. However, an output growth of 5% provides 35% of the profit improvement required and is backed by a diverse project portfolio, good reserve replacement rate and a strong track record both on volume and costs.

These figures confirm our belief in the company, which among the supermajors shows one of the highest production growths.

Please recall that CSFB recently upgraded the stock to an outperform as they believe that the current share price assumes no further improvement in underlying returns by 2005 which is much too pessimistic.

Eni's figure came also in at the top end of the range and overall 41% higher compared to 1Q last year. Net income was EUR 1.9bn and EPS EUR 0.50. Whereas production growth was on the lighter side with 4% yoy due to outage during the strike in Venezuela, strong Gas & Power division mainly drove the outperformance. The rolling return on average capital employed at 22% is higher than the average of the Big Five Majors.

We believe Eni is an interesting play on the energy sector and in addition comes with an attractive dividend yield of 5.65% which, given the high cash generation and strong balance sheet, looks sustainable.