Still comfortable with oil stocks (page 3 of 3)

(ii) capital spend to depreciation is lower - this implies higher return on invested capital.

CSFB believes the global industrial cycle has troughed and are increasingly confident that industrials will enjoy organic top-line growth in 2004 - this is crucial when operational gearing is 4-5x for most companies. Among their preferred plays are Siemens (SIE GY; EUR 51.95) and MAN (MAN GY; EUR 18.89). CSFB has slightly raised the revenue estimates for Siemens due to improved top line growth in ICM and ICN. 2004 EPS estimates are for EUR 3.33 and for 2005 EUR 4.13.

We remain positive on both companies. However, given the current environment we would advise to add new positions in stages.

Adidas-Salomon (ADS GY; EUR 78.08) was one of the stocks bucking the downward trend this week. Please recall that we recommend Adidas-Salomon as play on a strengthening Euro. A major part of the production is outsourced to Asia and denominated in USD in addition to the Euro sales. Adidas has a net USD exposure of over USD1bn and should therefore benefit from an appreciating Euro.

Furthermore the stock was supported this week by an upgrade by UBS on the basis of their belief that the market underestimates the value of its European operations while the US may be overestimated. The US back-to-school season seems to be better than expected, however, order backlog in the US should still be down by around 12% yoy.

However, we believe this should already priced in. From 1Q04 onwards comparisons should become more favourable and in the long-term Adidas-Salomon's favourable exposure to the strengthening Euro should come into effect. We reiterate our buy.

CSFB upgraded their EPS 04 forecast for Vodafone (VOD LN; GBP 1.225) by 7% to 8.1p and 04 free cashflow by 5% on the back of encouraging industry margin trends, a more upbeat view of mobile data and the sale of Japan Telecom. As a consequence, CSFB is also increasing Vodafone's target price from 135p to 140p per share.

Given the sharp share price gains of higher beta stocks and the fact that European service provider only increased more or less in line with the market increases the possibility for a rerating of more defensive stocks with sound fundamentals.

In addition, Vodafone appears on top of Citigroup's contarian screen meaning Vodafone has a price momentum, which is moving in the opposite direction to its earnings momentum. We remain positive on the stock ahead of its interim results.