A more positive outlook for global equities (page 1 of 3)

US equities

Last Friday, the U.S. equity market slid as higher sales forecast from Intel Corp. (INTC, $27.39, CSFB: Not rated) failed to alleviate concern that shares already reflected a recovery in the economy and profits.

The market was also led down after Schering-Plough Corp. (SGP, $14.96, CSFB: Underperform) cut its dividend by 68% to $0.055 a share and predicted a drop in next year's profit (source: Bloomberg). This decrease erased the gain during the week, with the S&P 500 remaining virtually flat. For the coming week, we remain cautious, believing weak corporate fundamentals would limit the gains driven by signs of an economic recovery in the U.S.

Therefore we took profit on stocks that rallied, such as Illinois Tool Works Inc. (ITW, $71.57, CSFB: Not rated) and Harley-Davidson Inc. (HDI, $49.36, CSFB: Neutral). We secured a 14.29% return on ITW and 17.15% on HDI since our recommendations on May 23rd, and June 2nd respectively.

We also closed our trading recommendation in PMC Sierra Inc (PMCS, $12.99, CSFB: Not rated), which hit our target price of $13.50 intraday, yielding a profit of 12.22% since recommendation on August 19, and in Cardinal Health Inc (CAH, $57.84, CSFB: Neutral), which recovery rally appeared to run out of steam, taking a 9.74% profit since August 1st.

We continue to recommend investing in laggards with attractive valuation, like The Allstate Corp. (ALL, $36.20, CSFB: Outperform), whose stock price underperformed the market. Since July 1st, ALL's stock price decreased 1.84%, compared with the S&P 500 Insurance Index, which gained 2.24%.

In the near term, ALL would benefit from a tight personal lines market, and an eventual rebound in the consumer-based financial services market. Company's strategic goals are to grow its property/casualty business and to broaden its presence in financial services offerings for middle-income Americans, and it is gaining ground on both fronts (source: Prudential Financial).

For trading-oriented investors, we added General Electric Co. (GE, $29.88, CSFB: Neutral) on the U.S. Recommendation List as a play on a possible increase in orders for power transmission equipment after the blackout in the northeastern U.S.

We fixed a tight stop-loss at $28.00. Economic environment remains difficult for GE, which reported a 0-5% decrease in July short-cycle orders. They were down 5-10% excluding acquisitions and currency. CSFB expected a 10-15% increase (up 0-5% excluding acquisitions and currency) on a reported basis.

Reported orders appeared to decelerate from June results, which were up 10-15% (Source: CSFB). Plastics sales in July were hurt by sluggish demand from automotive end markets as many U.S. auto manufacturers shut down for an extra week in July to work off inventory (source: Deutsche Bank).

The medical company Abbott Laboratories (ABT, $38.98, CSFB: Not rated) plans to spin off most of its hospital products business to focus on its faster growing drug and medical-devices units. Hospital products contributed to 17% of Abbott's fiscal 2002 revenues and to 18% of the operating earnings.

But since the launch of the rheumatoid arthritis treatment Humira, the drugs unit has been driving the company's growth. Humira sales are expected to reach over $200 million in 2003 and between 700-900 million in 2005. It has the potential to become a multi-billion-revenue drug for Abbott if as the company expects it will also be approved as a treatment for psoriatic arthritis, psoriasis and Crohn's disease

The filing for psoriatic arthritis is expected in H1 2005, for psoriasis in H2 2005, for Crohn's disease in H1 2006.