Specific weak US dollar stock plays (page 3 of 3)

Energy stocks tend to have healthy balance sheets, comfortable dividend yields, strong earnings revision momentum and show attractive valuations.

Our two preferred plays in Europe, TotalFina (FP FP; EUR 124.0) and ENI (ENI IM; EUR 13.346), come with an attractive dividend yield of 3.64% and 5.62% respectively. Both of them reported a good set of figures. TotalFina has one of the highest production growth figures among the supermajors and Eni offers the highest dividend yield of the European integrated, and on 6.2x EV/EBITDA, the stock looks attractive trading at an 11% discount to Total and a 20% discount to BP.

Please note that CSFB initiated coverage of the luxury goods sector with a market weight and rate LVMH (MC FP; EUR 43) outperform. Key points are the strong business model reflected in strong EBITA margins, consistent with significant pricing power. In addition, the stronger outlook of the company after the restructuring and the focus on its remaining core products including the selective retailing business, DFS and Sephora, should provide a catalyst.

The fact that the company still reports double-digit growth for its most important division Louis Vuitton in April and May shows that the outbreak of Sars, which raised concerns about the vulnerability of the whole sector would not hinder the sector's performance over the medium term. The stock ended the week 9% higher after positive comments by its CEO on the annual general meeting.

Our preferred play in the steel sector remains Arcelor (LOR FP: EUR 9.96), which reported results in line with expectations. EBITDA came in at EUR 641m compared to EUR 301m in the 1Q last year and EPS of EUR 0.4 compared to EUR -0.05 in the 1Q last year. On a divisional basis, strong performance was reported in the flat rolled division driven by higher steel price (according to Metal Bulletin, the benchmark European steel prices have gained 11% from a year ago) and synergy whereas the long division suffered from higher scrap prices.

While in the short term the steel fundamentals are likely to remain weak we would like to point out that Arcelor remains a restructuring and debt cutting story. After its merger only a little over a year ago, the synergy realisation remains on track and is so far impressive. Arcelor managed to cut costs by EUR 230m since the merger, which is more than double of what the company predicted.