Jobs data hits US stock markets

US Equities

The credit squeeze led to a decline in our recommended Finance-credit card company, MBNA Corp. (KRB, $25.03, CSFB: Outperform), which increased 7.4% since our recommendation on Oct. 3rd, compared with a 4.04% increase for the financial sector.

We maintain our trading buy on MBNA with a target price of $28.50 ahead of Christmas season. CSFB raise its target price to $32 from $30 on valuation basis.

Investors should be interested in our U.S. Small & Mid Cap Investment Ideas. Year to date, small & mid cap stocks outperformed the blue chips. The S&P 400 Mid-cap and S&P 600 Small-cap indices gained 27.35% and 30.26% respectively, compared with a 16.77% gained for the S&P 500.

We continue to see out performance in these stocks due to their more flexible management and quicker response to the changing economic landscape.

We would recommend investors to consider taking partial profit in the two gold mining stocks Newmont Mining Corp (NEM, $49.59, CSFB: Neutral) and Placer Dome Inc (PDG, $18.34, CSFB: Outperform).

We maintain our positive view on the two stocks in the light of the rising gold price, which we believe should rise to USD 450 per ounce in the next six months. We would also like to draw the attention to the note "The case for gold" posted into the IC Portal by VAN yesterday, which refers to a CSFB report making a bullish case for gold and gold mining stocks in particular.

However in the short-term investors and fund managers will be keen locking in some of their gains on gold mining stocks to close the year. And especially after Placer Dome enjoyed a 57.24% return YTD and Newmont Mining of 69.58% in the same period, reducing positions in the two stocks on a trading base, in order to eventually buy back the shares on lower levels is an attractive strategy to enhance returns by capitalizing on the volatility in the two stocks.

Another possibility to reduce the positions or to enhance returns on the above stocks is writing a call options on a part of the position. We would therefore like to highlight the call options in the table below, to give some ideas on the possibilities.

Europe

European indices reached new year highs with the DJ EuroStoxx 50 Index ending the week up by about 1.5% to close at 2672.02

• We increased our exposure to European equities last Friday from 7 to 8% amidst our general increase of equities from 30 to 35%.

• Siemens and JC Decaux reached our target prices, which we further increased by 11% each.

• After the run in cyclicals, telecoms should benefit from a potential sector rotation

European markets reached new year highs this week widely ignoring the fact that the US Dollar reached new lows against the Euro at the same time.

At the beginning of the week positive manufacturing data from both sides of the Atlantic provided the backdrop for the increases. However, indices retreated slightly towards the end of the week, but still managed to close the week in positive territory. On the economic front, the ECB and the Bank of England announced that they would leave interest rates at current levels as was widely expected.

We increased our exposure to European equities last Friday from 7 to 8% amidst our general raise of equities from 30 to 35%. Please find below some ideas on how to position the portfolio in order to incorporate the increase.

The news that US President Bush withdrew the steel tariffs on imported steel is positive not only for the steel sector, but for Europe in general. Arcelor (LOR FP; EUR 13.49), which is our recommendation in this sector continued to gain on increasing volume since mid November when it reported 3Q figures.

Arcelor is the biggest global carbon steel manufacturer with a strong market position in Europe and substantial cost cutting opportunities.

As we mentioned earlier on we believe the industry outlook for steel is improving with increasing demand and discipline on the supply side. We would expect this to feed through to a period of rising steel prices and volumes for companies such as Arcelor, Thyssenkrupp should also achieve above-average profitability.

Given the fact that both these companies export only small volumes to the US (Arcelor's exports to the US make up around 2% of its total output) the removal of the tariffs is not directly material. However, it is good news for the sector and should further support the case for companies in this sector.

CSFB reinitiated coverage of both companies and calculated a fair value of EUR 15.3 per share for Arcelor, which represents an upside of 13% from current levels. Given the sharp increase over the last 6 weeks, we would prefer for the share price to consolidate before entering new positions as the share price has risen over 21% since 24th October. We consider an entry of around EUR 12 to 12.50 as attractive.

JC Decaux (DEC FP; EUR 13.63) surpassed our target price of EUR 13.5 on Tuesday. The stock yields a performance of 17% since the beginning of the year. We will increase our target to EUR 15, which reflects an additional 11% upside as we like this mid cap stock in the media sector.

We adjust our stop loss accordingly to EUR 11. As the stock is trading at new highs we would wait for some consolidation to add to new positions. We would consider an entry closer to EUR 13 as preferable.

Siemens (SIE GY; EUR 63.35) also surpassed our increased target price of EUR 63 on Wednesday. The stock yields a performance of 24% since our recommendation mid August.

We believe the switch from a restructuring to a pure growth story is still some quarters away and the completion of the restructuring programme (6 out of the total 13 groups still need to achieve their financial objectives) is expected to continue drive a considerable proportion of earnings growth in 04 and 05.

We also see Siemens as a play on the German recovery as with a correlation (R2) of 0.86 to the DAX the stock shows a close correlation to the German index. Around 35% of its sales are in the domestic German market. We will increase our target price to EUR 70, which represents an additional upside of 11% and adjust our stop loss to EUR 55.

We believe it is too early to sell this recovery play however beyond a level of EUR 70 the stock looks stretched at this point in time. CSFB recently published a report on Siemens in which they calculate the fair value using DCF, SOTP, historical and relative valuation in a range of EUR 63 - 70.

On Friday, CSFB upgraded its target price for Vodafone (VOD LN; GBP 1.36) by 11% from GBP 1.40 to 1.55 on the back of increases in EPS estimates for 04 and 05. In our view, this upgrade is driven by 1) company specific issues. The new CEO Arun Sarin is looking to use proceeds from cost cutting to invest in growth basically going for market share gains.

This is positive and may have an impact on some competitors. The upgrade is also driven by 2) a sector rotation view. Although cyclicals could see some further upside, it is important it to think where to be positioned next given the nice run they had.

Telecoms with more growth defensive characteristics are looking more and more attractive. Among the integrateds, we would favour France Telecom (FTE FP; EUR 21.33) and among the mobile companies we continue to like Vodafone.

Vodafone is currently 3% away from our target price of GBP 1.40. Investors who went in at the low GBP 1.20 should lock in some profits. However, we believe Vodafone remains attractive for investors with a longer term horizon.