Specific weak US dollar stock plays (page 1 of 3)

US equities

The U.S. Trade Account, representing the balance between the exports and imports of goods & services became negative in the early 70's. Before, the U.S. was net exporter of goods, and net importer of services.

Since mid-70's until 2002, the situation changed, and the U.S. became a net importer of goods, and net exporter of services. Despite the increase in services exported, this did not offset the import of goods. However, exports of goods from the U.S. remain significant, representing about 70% of total exports of goods & services

Therefore, we believe companies with a large part of revenues coming from exports of goods should benefit from a weak U.S. dollar. Hence we recommend 3M Co. (MMM, $125.45, CSFB: Neutral). At the end of FY2002, this Blue Chip had more than 50% of its revenue coming from outside the U.S. (25% from Europe), which is the largest part among the large cap in the capital goods sector (source: Bloomberg).

Based on our current investment focus on energy stocks and on dividend yield stocks, we have added ConocoPhillips (COP, $52.09, CSFB: Outperform) to our US Buy List. We are taking profits in Schlumberger Ltd. (SLB, $47.40, CSFB: Neutral) and Noble Corp. (NE, $35.82, CSFB: Neutral) and switching the positions into ConocoPhillips. ConocoPhillips is the No3 US integrated oil company as a result of the merger between Conoco and Phillips Petroleum completed at the beginning of September last year.

ConocoPhillips, with its strong downstream business has been benefiting from expanding refining margins during the first half of the year. We expect refining margins to remain strong as we see the possibility of a tightening supply/demand situation.

Low inventories in the OECD countries, namely in the US, on one side, and the production cut by the OPEC starting on the first of June and a further possible cut during the organisation's meeting on the 17th of June, could bring supply/demand out of balance.

What makes ConocoPhillips attractive as an investment at this point is the indicated dividend yield of 3.07% and attractive valuations. The stock currently trades at a 9.77x 2003 earnings and at a price to book of 1.14x.
In a longer-term perspective we do like the company's strategy to grow its liquid natural gas business.

Natural gas is becoming increasingly important, demand is in a steady rising trend, and prices remain high, due to tight supply. ConocoPhillips is responding to this trend and is developing its natural gas sources, mainly in Asia. The company has large projects in development in Indonesia and Australia/East Timor, which should start production in 2003, respectively 2004.

In our view ConocoPhillips, given compelling valuations, growth potential, its ongoing merger related integration process, and the 3.07% dividend yield make the stock a good pick in the energy sector.

Gold and the gold mining stocks continue their rise, as the US Dollar tends to weakness. And as the economic outlook remains uncertain, we grow increasingly confident with our forecast of gold reaching $425/450 per ounce during the year. Therefore, in order to increase our exposure to gold, in addition to Placer Dome Inc. (PDG, $10.59, CSFB: Outperform) we are buying Newmont Mining Corp. (NEM, $28.71, CSFB: Neutral).

Newmont Mining's (No 1 US gold mining company) attractiveness lies in the fact that it is not hedging its gold reserves. This means, that it has very high earnings sensitivity to the gold price and thus is an ideal vehicle to invest in gold.