Oracle stays a buy, German stocks also look attractive (page 1 of 3)

US Equities

General Electric Co. (GE, $29.32, CSFB: Neutral) weighed on the market last Friday, after its shares fell 2.7%. The company reported Q3 earnings in line with analysts' expectations of $0.4 a share, but lowered guidance for Q4. Results were weaker than expected among industrial segments, balanced by a lower-than-expected tax rate.

Separately Friday, the company confirmed news accounts that it had agreed to acquire Amersham Plc (AHM LN, £p 660, CSFB: Underperform) for about $9.5 billion in stock, paying a $3 billion premium for the company. We maintain our trading-buy on GE with a tight stop-loss at $28.00.

Bank of America Corp. (BAC, $81.12, CSFB: Outperform) will start the earnings season for the major financial institutions and give a picture of what we can expect from the others banks. Consistent with many other banks, BAC has generated above-average earnings from mortgage banking, securities gains, and whole loan sale gains.

However, with the increasing mortgage rate, we expect revenue from this business to be lower than in the previous quarter (source: UBS). With a 3.94%-dividend yield, valuation still attractive, we maintain our Buy rating on Bank of America.

The drug maker Pfizer Inc (PFE, $30.75, CSFB: Outperform) received approval for Inspra, indicated for the treatment of congestive heart failure (CHF). The timing of this approval is in line with expectations, and the drug has previously received FDA approval for the treatment of hypertension, but Pfizer delayed the formal launch of the product until the CHF indication was received.

Inspra is the first anti-aldosterone agent to be approved for treatment of CHF. The drug will be fully commercially available in December. Inspra sales are expected to reach USD 350 million in 2004 and USD 740 million in 2005, according to CSFB estimates.

Pfizer is also expected to present clinical data on Macugen a drug for age-related macular degeneration (AMD) in November and a further milestone would be the filing of the inflammation drug Pregabalin in the US during the fourth quarter.

We expect these developments to boost investors' confidence after the recent share price decline following launches of competitive products to Pfizer drugs. Hence we reiterate our recommendation on Pfizer, as we are confident about the company's growth prospects of a 15-18% EPS growth for the next two years.

We did take a 23.59% profit in our recommendation Siebel Systems Inc (SEBL, $12.14, CSFB: Outperform) last Friday, after the share price of the enterprise software maker benefited from a rally since our recommendation on September 30, and hit our 12-months target price.

We believe that the stock has run up a bit fast and the upcoming earnings season could bear some risk of disappointment as the expectations have run high. The company will be reporting its quarter results on October 15 after market close and is expected to post USD 0.03 per share earnings, 1 cent better than in the previous quarter. We would recommend investors to take profit in Siebel Systems.

In the enterprise software sector we continue to have a buy recommendation on Oracle Corp (ORCL, $12.33, CSFB: Restricted), which as well rallied since we initiated our recommendation on the stock on September 30. The company extended its hostile offer to acquire rival Peoplesoft Inc (PSFT, $20.55, CSFB: Restricted) for USD 19.50 a share until December 31, as it awaits a US Department of Justice ruling on the offer.

At current stage it looks uncertain whether Oracle will succeed with its bid, especially with regard to the current share price of Peoplesoft trading above Oracle's offer.