| Investment Views (September 20th 1999) |
Instead of writing my clients
individually I thought I might as well
do a weekly summary of my views
on the markets, the currencies,
the economy, the world, and
life in general.
The Dax retreated below 5300 before closing slightly above 5300 on Friday.
Since Wall Street was pretty positive, we see better action in Frankfurt
on Monday. But as the saying goes, "when Wall Street sneezes,
the rest
of the world catches a cold" remains true, however positive the fundamentals
are. So we would not be surprised, if Dax retest the 5000 support
if the
Dow should retest the 10500 level.
The Paris market remains the most positive of all major European bourses.
The French companies have all reported much better results compared
to
last year. The French economy is recovering nicely.
The Swiss market remains one of the weakest. On Friday the SMI
managed
to close above 7000 level. So we expect the market to be a bit
stronger
on Monday. But slowly time is running out for the market to rally.
October
and November are traditional tax selling months. So we have really
have
to be patient in Switzerland. The levels to watch are: 6950 on
the downside and
7250 on the upside.
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Sap has been especially strong the week before last. The market
has finally understood that SAP is a wonderfully flexible software company
that will profit massively from the internet providers and other e-commerce
sites' business.
Last week SAP retreated a bit after an enormous run. Also the
disappointments
with Oracle has affected SAP and Cap Gemini as well. We remain
positive on
both stocks. We believe that both SAP and Cap Gemini have qualitative
better
products than Oracle. Therefore these companies will probably
do better than
Oracle in the long run.
LVMH has announced better results than the analysts had expected.
The
recovery in Asian economies has been important. We recommend
adding to
LVMH position in any selloff.
Two weeks we recommended that our clients buy Zeltia at 14.80.
Zeltia is a
Spanish biotech company. The interesting thing about Zeltia is
that it is
working with Marine plants and animals to find chemicals that will
also enhance
human health. We think it one of the most promising biotech company
in
Europe. The stock is still quite cheap. If internet companies
are selling
for more than 200 PE than we think a company like Zeltia selling at
a PE
ratio of 65 is promising indeed. We would value biotechnological
companies
at least at the same level as the internet companies, if not more,
because
the market could be much larger than internet companies.
The US Treasury bonds have been trading in a narrow range slightly above
the 6% level. If the Bank of Japan eases again, we expect the
treasuries
to recover further with yields falling below 6%.
The internet will transform our world in a massive way. I think
it is time to
begin and do some thinking on what kind of change it will bring and
see if
we can draw some conclusions that are relevant to our investment decisions.
First, as we have opined in this column we do not believe many of the
today
sky high internet stocks will eventually make a lot of money.
The internet
is such a competitive forum. The pricing pressure is so great
so that only
providers with Brandname recognition and meaningful contents will be
able
to have some pricing power. We must remember what the internet
eventually
will bring is absolute international competition. Price competition
will be fierce.
Middle men will be eliminated. Therefore we see many service
sector jobs
will be eliminated. For example, we see this trend in the financial
sector already.
More and more people are trading stocks on line. With internet
brokerage
charging less than $10 per trade, we should see brokers and financial
advisors
being eliminated at major brokerages in a big way soon. The same
should
happen in other tradable items. For example, there will be less
need for
retail stores for items that one can buy easily on the internet.
Of course
there will be branches of the economy that will profit. For example:
the telecoms, the Federal Expresses, and the computer software industries.
But the question is: Will the general economy really profit or will
the general
deflationary trend continue and become worse and worse? Without
pricing
power and with lots of jobs being eliminated and salaries on hold,
we see
the world economies trending toward deflation, even if it continues
to grow.
That means real estates and gold will become even less appealing.
If we
believe our argumentation, we would not invest in the "internet" stocks
themselves but in the companies that do have contents and pricing power
as well as companies that will offer services to the internet providers
and users: ie. companies such as Sony, Time Warner, Dow Jones,
and
Federal Express. We would also recommend the stocks of Corsair (CAIR),
Qualcomm, Ericsson, Nokia, the equipment and software provider for
the CDMA,
the next wireless telephony standard as well as stocks of telephone
companies
like Sonera, ATT, Worldcom-MCI, Colt Communications, and Swisscom.
We also
see internet companies needing ever more sophisticated software.
Therefore
we're quite optimistic about the long term future of the likes of IBM,
Oracle,
SAP and Cap Gemini.
| *The stock prices are provided for informational puruposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions! |