More firms added to our stop-loss list

Last week, terrorist bombings in Turkey pressured stock markets. The S&P 500 lost 1.43% and the NASDAQ Composite Index declined 1.31%, offsetting broadly betterthan-expected economic data.

As we expect U.S. stock markets to remain volatile, with investors concerned about sales and profit growth sustainability for 4Q, we continue to advice investors to have a strict stop-loss policy.

Hence, last week, we removed from the Recommendation List American International Group Inc. (AIG, $56.59, CSFB: Outperform) after stock price hit our stop-loss level of $57, and Goldman Sachs Group Inc.(GS, $92.97, CSFB: Not rated) to protect some gains.

Both companies remain our favourites in their respective sectors, and we are waiting for lower prices before recommending them again. On corporate side, we do not expect much news, as the year-end is closing.

However, if terrorism concerns increase in the short-term, defense companies should outperform as investors would look for less volatile sectors. Companies such as Northrop Grumman Corp. (NOC, $93.15, CSFB: Outperform) would attract more investors due to its defensive nature beta<1, no correlation with the S&P 500).

For investors interested in small & mid cap in the defense sector, Teledyne Technologies Inc. (TDY, $17.60, CSFB: Not rated) should be a suitable investment idea. The company provides electronic and communication products. It also manufactures aviation and missile engines.

We would like to highlight InVision Technologies Inc. (INVN, $29.03, CSFB: Not rated), a small cap in electronic security devices business. INVN develops, manufactures, markets, and supports automated explosive detection systems for civil aviation security and drug detection applications.

Its major customers are airports, where the company implements explosive detectors. Although most of U.S. airports already have such detectors, we believe there is still sales growth potential abroad. Besides, it is expected that in 2005, U.S. airports would have to renew their detectors.

We have a Buy rating on InVision for more aggressive investors, with a target price of $33 and a stop-loss at $24.50.

The Chinese telephone maker Qiao Xing Universal Telephone Inc introduced new mobile handsets jointly developed with UTStarcom Inc (UTSI, $35.75, CSFB: Not rated) and utilizing UTSI's PAS technology. PAS™ (personal access network system) is a wireless access network solutions.

It enables network migration from wireline to wireless so service providers can offer mobile wireless voice and data services within a city or community.

The joint development gives UTSI the possibility to leverage its expertise in the PAS technology. Thanks to the competitive pricing of the handsets and the services based on PAS the technology has seen rapid user growth.

China Netcom and China Telecom customers can make phone calls via PAS services for the cost of a fixed line call. By the end of September there were over 28 million PAS users, and the number is expected to grow to over 30 million by year-end and by another 20 million in 2004; offering growth opportunities for UTSI, not only in handset sales, but also in networking equipment, as capacity utilisation of the PAS networks is rapidly growing at a 4-5% monthly rate, approaching 60%, according to UTSI estimates.

UTSI in the coming year should also benefit from continuing deployments to Reliance in India, as well as to Yahoo Broadband in Japan, which is likely to drive UTSI's sequential income growth in the respective business segment.

News flow about contract wins that the company expects from Latin America would add to the upside in the company's overall revenue growth. We reiterate our Buy recommendation on UTStarcom Inc, with a 12-months price target of USD 39. UTStarcom is one of our Small and Mid Cap recommendations.

Gold mining stocks Placer Dome Inc (PDG, $16.97, CSFB: Outperform) and Newmont Mining Corp (NEM, $45.24, CSFB: Neutral) both hit our target price, as spot gold rose close to USD 400 an ounce last Monday and trading up to USD 400.550 an ounce on Wednesday, moving above the USD 400 mark for the first time since 1996.

Placer Dome shares yielded a total return of 48.90% YTD. We are increasing out 12-months target price to USD19.50, on strong earnings perspectives in the light of the higher gold price, and our positive outlook for gold.

Newmont Mining shares yielded a total return of 56.44% YTD. We are increasing our 12-months target price to USD 52. We would also like to advise investors considering taking partial profit in the two stocks.

Johnson & Johnson (JNJ, $50.88, CSFB: Not rated)dispute with Boston Scientific Corp over the patents covering JNJ's Cypher stents is entering a new stage. The US District judge in charge of the affair ruled that Boston Scientific could be allowed to market its drug eluting stent Taxus in the US while the patent infringement lawsuits
would continue.

The two companies sued each other on patents that are related to the stent itself, rather than to the fact that the new devices are drug eluting and represent a technological milestone, the judge justified her decision.

Johnson & Johnson said it would appeal against this decision. So far Johnson & Johnson is the only company selling drug eluting stents in the US, a market that is expected to grow to USD 4 billion in 2005 and to USD 7 billion worldwide. Outside the US both companies' stents are in competition and the thread of Boston Scientific, US market entry would certainly hurt JNJ's sales growth for Cypher stents.

Boston Scientific's Taxus stent hasn't however yet received US regulatory approval for sale, and a decision in the patent infringement lawsuits is expected some time next year.

The Cypher stent is currently the main focus of attention in terms of growth at JNJ, which we believe is not warranted.

Thanks to the company's broad diversification it has a wide base for earnings growth. JNJ has a solid growth track record of 13% annual EPS growth over the last 10 years. The defensive characteristics of its business are adding to the stock's attractiveness.

Pharmaceutical stocks closed the week on a weak session, before on Saturday the US House passed the Medicare bill by a narrow 220-215 vote. The bill, which aims to increase Medicare payments to the elderly and disabled is now in the Senate which started debating on Sunday.

Some Democrat Senators said they would try to filibuster the vote. The bill, if passed will allow the government to spend USD395 billion over the next decade to pick up much of the cost of prescription medicines that seniors buy at pharmacies,implicitly expanding sales for drugmakers such as Pfizer Inc (PFE, $33.18, CSFB: Outperform). Given the importance to the bill also for the drug makers, we expect the news flow on the Senate decision to move the share prices in the drug sector.

An approval at this stage looks very likely, as the Republicans have the majority in the Senate. In order to filibuster the vote Democrats would need the support of at lease 40 Senators, and if successful they will try to delay the vote as long as possible, which means into early next year, as after Thanksgiving a decision on the bill appears unlikely, with the Holiday.