Saddam effect to impact markets (page 1 of 2)

US Equities

Companies such as Halliburton Co. (HAL, $25.46, CSFB: Outperform), which got a no-bid government contract for as much as $7 billion of reconstruction work in Iraq, could see their stocks lifted by investors' optimism.

We believe this news would offset the fact that Halliburton may not be reimbursed for as much as $61 million ($0.14 per share) of potentially inflated fuel costs uncovered by a U.S. Defense Department auditor, after the company failed to fully analyse the price it was charged by a Kuwaiti supplier.

Furthermore, Halliburton said that more than 97% of asbestos claimants voted to accept a reorganization plan, clearing the way for a $4.2 billion settlement (source: Bloomberg). This news led up stock price 3.12% last Friday. We maintain our Buy rating on Halliburton and our target price of $27.

For the coming weeks, we remain focused on companies with high dividend yields and on small & mid caps.

Graco Inc. (GGG, $39.43, CSFB: Not rated), a mid-cap company supplying technology for the management of fluids, announced a 70% increase in its regular quarterly dividend from $0.0825 to $0.14 per share. Furthermore, a special one-time dividend of $2.25 per will also be paid on March 25, 2004, to shareholders of record as of March 11, 2004 (source: Bloomberg). We rate the stock as a Buy.

We believe our recommended U.S. banks, Wells Fargo & Co. (WFC, $57.01, CSFB: Outperform), Bank of America Corp. (BAC, $75.85, CSFB: Outperform), and Hibernia Corp. (HIB, $23.35, CSFB: Neutral) offer attractive dividend yield for long-term investors. These companies give a gross dividend yield of 3.16% for WFC, 4.22% for BAC, and 3.08% for HIB.

For aggressive investors, we reiterate our Buy rating on MBNA Corp. (KRB, $24.86, CSFB: Outperform) after bankruptcy filings for November declined an adjusted rate of 3.3% y-o-y (source: CSFB). As the U.S. economy is recovering, we believe this credit card company would continue to benefit from lower default risk. CSFB anticipates that filings should decrease about 5-7% in 2004.

Europe

European indices increased around 0.5% during the week but remained short of the new year-high levels they crossed the week before.

• We added France Telecom to our recommendation list as we believe that telecoms should see a re-rating in 2004 when investors start locking in profits on cyclicals.

• We remain positive on our energy cum dividend yield plays Total and Eni and recommend to hold on to positions in cyclicals such as Siemens, JC Decaux, Adecco, Holcim and The Swatch Group

European indices increased around 0.5% last week but remained short of the year-high levels they have crossed the week before. The gains came even with the Euro trading above USD 1.22 during the week. This could reflect that investors slowly are getting used to a stronger Euro and on the other hand that stronger overall growth is expected to outweigh the impact of a weaker US Dollar.

While in the US the Dow Jones Index managed to clear the 10,000 level, the Dax Index traded above the 3,900 level shortly on Friday but retreated slightly to close at 3860.13. The Dax Index was supported by a better than expected reading of the ZEW confidence index among institutional investors.

The index climbed to 73.4 from 67.2 in November (expectations were for 71.7). This should bode well for this week's reading of the closely followed IFO Business Climate Index. The index is expected to increase to 96.5 in December with the current assessment component expected to come in at 84.4 and the expectation component at 109.