Asian stock investment ideas (page 1 of 3)

US equities

In October, Asian-based automakers posted the biggest gain in market share of U.S. vehicle sales, rising 1.3 percentage points to 32.4% y-o-y. European-based automakers rose 0.5 percentage points to 7.4%, while U.S.-based automakers fell 1.8 percentage points to 60.2%.

The Big Three, GM (27.3% market share), Ford (20.2%), and Chrysler (12.7%) are still holding the top 3 positions, but Japanese carmakers are closing the gap, with Toyota, Honda, and Nissan having 11.6%, 7.7%, and 5.2% market share respectively.

We do not recommend U.S. carmakers due to weak sales. Although General Motors Corp. (GM, $42.78, CSFB: Restricted) and Ford Motor Co. (F, $13.20, CSFB: Neutral) offer attractive incentives for their vehicles, sales do not present some improvements, because customers consider these incentives as normal.

GM and Ford tried to reduce incentives in October, but sales declined accordingly. We believe this trend would continue for the short-term, as long as U.S. automakers release new
models.

With ISM Manufacturing and Factory Orders expected to rise, we would like to highlight our recommended U.S. manufacturers. ITT Industries Inc. (ITT, $65.92, CSFB: Neutral) produces pumps and systems to measure and control water and other fluids. It also has a significant exposure to U.S. defense spending, with about 30% of its sales to the U.S. Army in 2002.

Pentair Inc. (PNR, $43.60, CSFB: Not rated), a company producing electrical and electronic enclosures, professional tools, and water products, has an attractive valuation in our view. Dividend Discount Model gives a theoretical stock price of about $60. We rate this mid-cap as a Buy.

The small and mid cap sector generally continued performing well over the last week, with the S&P Midcap 600 up 1.32% and the S&P Smallc up 1.18, compared to 0.61% for the S&P 500 large cap index.

Among our recommendations in the segment UTStarcom Inc (UTSI, $37.88, CSFB: Outperform) rose sharply by 2.21% over the week and could get further support by a bullish report from CSFB, which initiated coverage on the company with an Outperform rating.

CSFB places emphasis on the points, which we see as key to our recommendation, namely being the leading equipment vendor for PAS (personal access system) technology to Chinese incumbents, but also becoming increasingly important vendor for DSL and eventually 3G technology, as well as UTSI's potential to leverage its expertise into markets in India and Latin America, where the order flow is expected to grow strongly.

CSFB in its valuation model is slightly more bullish than we are in ours, as the CSFB analyst sets his 12-months price target at USD 45, while we have ours at USD 39. Our price target reflects our general cautious view on growth expectations, but in this case in fact might prove too conservative, as the news flow coming from UTStarcom points towards solid revenue streams.

The mid cap software maker Macromedia Inc (MACR,$20.52, CSFB: Outperform) share price is continuing to recover from its over 34% drop after the company issued a lower than expected revenue guidance for the fiscal year 2004.

During the last quarter report the company management cut its revenue growth forecast to 5-10% from 10-20%, citing disappointing momentum on the release of a product upgrade.

Macromedia is aiming to add the professional developer community to its clientele, growing the market potential by 8.5 million customers from the currently 6.3 million creative professionals that MACR existing products serve.