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US Equities

Last week, U.S. stocks remained virtually flat, with the S&P 500 gaining 0.54% due to mixed earnings reports. However, better-than-expected durable goods orders for June boosted the S&P 500, which rose 1.74% last Friday.

Coming Thursday, investors would keep an eye on GDP figures, expecting a 1.5% growth for 2Q. In the meantime, earnings reports would continue to drive the market, and among our recommendations, the following companies will present their quarterly figures this week (source: Bloomberg):

• Northrop Grumman Corp. (NOC, $87.10, CSFB: Outperform); $0.859 EPS expected on July 28,
• ConocoPhillips. (COP, $52.94, CSFB: Outperform); $1.432 EPS expected on July 30, and
• Exxon Mobil Corp. (XOM, $35.76, CSFB: Neutral); $0.558 EPS expected on July 31.
• Clear Channel Communications (CCU, CSFB : Outperform) $0.369 expected on July 29.

Northrop Grumman Corp. is expected to report $0.859 EPS vs. $1.52 y-o-y. We continue to believe NOC would be one of the major beneficiaries from the defence budget increase for 2004, which is currently being discussed by the Senate and the Congress.

The company consists of four business segments - Electronics, Ships, Information Technology & Services, and Integrated Systems -, each of which has a significant part in NOC's revenue - 30%, 27%, 24%, and 19% respectively in 2002 (source: Bloomberg). Hence, we reiterate our Buy rating on Northrop, believing steady earnings and strong cash flow would support stock price for defensive investors.

We would like to reiterate our Buy rating on Harley-Davidson Inc. (HDI, $45.70, CSFB: Neutral), which reported good quarterly earnings recently (see U.S. Daily Comments from July 17). We believe investors would be attracted to HDI's attractive risk/reward profile and increasingly focussed on HDI's quality stream of consistent 15% earnings growth, accelerating cash flow generation, and opportunity for accelerated dividends, and shares repurchase (source: A.G. Edwards).

Furthermore, we believe its 100th anniversary would serve to boost sales, helped by a weak dollar. Hence, we believe our target price of $55 is reasonable, given a theoretical price of $62 given by the Dividend Discount Model (source: Bloomberg).

We have added the medical device maker St Jude Medical Inc (STJ, $52.79, CSFB: Not rated) to the US Buy List, a stock that we see as an attractive long-term investment. The worldwide medical device business represents some $175 billion in annual sales. Standard & Poor's projects a 12-13% annual revenue growth and a 15-17% earnings growth for the industry over the next three years.

The industry's most profitable sector comprises innovative high technology products such as implantable and external defibrillators, orthopaedic devices and diagnostic imaging systems. St. Jude shares sold off sharply after the company announced its Q2 results. While overall sales of $495 million were up 23%, it was the sales in the implantable cardioverter defibrillators (ICD) that disappointed the market.

A key event will be the launch of its new cardiac resynchronisation therapy device (CRT-D) in the first half of 2004, in order to compete with Guidant and Medtronic in this increasingly important area in the ICD market.

The US ICD market is expected to grow to about $4.4 billion by 2005, from the current 2003 estimate of $2.9 billion, and with its new CRT device St. Jude could grow its market share to 15-20% by late 2005, compared to an estimated 10-11% currently.