Stockscom Report for January 9, 2000 21:16

Market Conditions

We had no idea on December 30 that our warning would be so timely that stocks can go down as well as up. In hindsight, it would have been profitable to have sold all or most of our stocks right then and bought them back on the low in the morning of Friday January 7. There is, however, a problem when trying to make such short-term calls. Even when you get the sell right, there is no guarantee that you will get it right when buying back. The best stocks set back only a little and buying them back after they show how strong they are involves all too often paying more than you sold them for. So you might as well sit tight.

It looks to us as if it will be harder to make money in 2000 than it was during the previous two years, but it should still be possible to do so.

The threat of rising interest rates is real. There seems to be little doubt that there is indeed a worldwide economic recovery getting under way. Even Japan is showing signs of life, though as one might expect, not necessarily that much to those that are very close to Japan. As often happens, thing continue to look black for some time as bear markets come to an end, just as they continue to look rosy for some time after an important market top.

We were tempted to exit Sony at the top, but we think staying with it will pay off in the long term. Similarly, Yahoo! is the kind of stock in our view where you want to look for places to buy on dips rather than to sell it our arbitrarily. Sure as you sell out this one, it is virtually guaranteed that you will have to pay more to back it back if, indeed, you ever do succeed in doing so. In our view this is the Microsoft of the Internet, and one of the very few at that. One of the others is Dell, the prime Internet retailer and not, of course, the dreaded Amazon. It is worth making the point yet again that we don't buy the Amazon story and now its chart looks dreadful. It's more than your life is worth to sell such a stock short, but still it looks to us like a stock capable of going in due course down to zero.

The broad market indexes are a very mixed bag. The Dow Jones Industrials made a new high close on Friday January 7 and also completed a powerful weekly upside reversal. Taken on its own, this market action normally suggests the potential for powerful follow-throughs to much higher levels. However, the action in other markets does not provide encouragement for this interpretation. While it is very unlikely that stocks generally are topping out, it will undoubtedly remain a market of individual stocks and one, furthermore, with the potential for considerable rotation. Some high tech stocks look quite tired, while some of the old stalwarts like 3M and Disney are really shaping up well. Alco has been a welcome surprise for investors in natural resources but we don't see chasing the stock here. In all likelihood Merck has put in a bottom but that does not mean that we want to buy it. It could well do a lot of basing before it can move substantially higher again.

Stocks to Sell

Sell Four Seasons (FS), Scientific Atlanta (SFA) and Texas Instruments (TXN)

We see three stocks to sell. In each case, the chart look reasonably good for the long term but we like the idea of selling our some stocks that have been less strong in order to raise some cash or to deploy into ones that are performing better. We have a sense that these three stocks are expensive by standard valuation criteria. Their weakening charts suggest the possibility that the line least resistance might be down rather than up. Although in 1999 we inadvertently got out of Qualcomm and Idec Pharmaceuticals, we missed very uncomfortable declines by making  timely exits from IBM, Hewlett Packard and, the most recent conspicuous market casualty, Lucent. On balance, our judgment calls to exit some weakening stocks but to nurse others, like Chiron, EMC and Novell, has paid off. There is always a conflict between giving a stock room to move and getting premature jitters. In the final analysis, it often pays simply to ask the question: Given the risk, can I use the money better elsewhere? In each of the three cases of stocks going out, we think the answer is Yes.

New and renewed recommendations

Buy Idec Pharmaceuticals Corp. (IDPH) $108.31

We have previously owned this stock and inadvertently dumped it when there was a hiccup in earnings. The story and the market action now look superb. This stock could be a potential double from here. The stock, as well as the story, compares with Chiron and QLT, both of which had similar hiccups and have come back like gangbusters. The buy side for our existing recommendations remains much the same as before, with strong recommendations to buy petroleum and oil service stocks. The pharmaceutical and medical sector has been coming back to life after many months of doing rather little. If high tech takes a breather, then the players in that market are likely to come looking for stocks like Amgen and could push them a great deal higher.

We repeat a particularly strong recommendation to buy Corning. One of our readers researched the company's financial statements in detail and he told us how impressed he was with everything he saw.

Action Ratings

The following is the legend for designating immediate action for our stock recommendations. The first code is B, meaning that the stock is timely to buy but the case for doing so right here is not overwhelming. Either the stock may have got ahead of itself and may be vulnerable to a retracement or else the stock has been performing disappointingly but may simply be regrouping. B+ and B++ indicate stocks for which there is a technical case to buy now, with plusses adding weight according to how many there are, up to a maximum of five. Stocks rated H are ones to hold, awaiting confirmation to buy more or to sell. SELL, of course, means what it says. It seldom pays to override this designation. There are several stocks at conspicuous buy points that warrant noting now.

Yahoo! looks ready to explode upward. This is the one pure Internet play that we think will hang in for the long term. Four Seasons has a conspicuously low-risk entry point here.

Current Recommendations:

(Entry Date, Entry Price, Last Close, Code, Name)

Stocks marked # are eligible for Canadian RSP funds. Otherwise there is a 20pc restriction on foreign stocks held in these accounts.

B+    99/05/12  39.75  86.88 ADI   Analog Devices

B+    99/09/07  76.88 116.94 AMAT  Applied Material

B+    99/04/06  49.00 120.38 AMCC  Applied Micro Circ (split on 99/09/10 2:1)

B+    99/08/06  78.50  68.00 AMGN  Amgen Co (split on 99/11/19 2:1)

B++   99/06/14  30.63  31.00 AOG   Alberta Energy Corp #

B+    99/11/16  73.03  86.50 BCE   BCE Inc

B+    99/09/07  84.94  76.38 BGEN  Biogen

B++   99/06/14 109.78  59.50 BPA   BP Amoco Plc

B+    99/09/07  57.69  92.94 BVF   Biovail Corp # (split on 00/01/07 2:1)

B++   99/08/06  26.38  44.75 CHIR  Chiron Co

B+    99/05/14  40.69  46.00 CLS   Celestica # (split on 99/12/21 2:1)

B+    99/11/16  34.94  46.13 COMS  3Com Corp

B     99/05/12 117.50 105.88 CSCO  Cisco (split 99/06/21 2:1)

B++   99/06/14  14.59  20.00 CXY   Canadian Occidental Petroleum  #

B+    99/12/27  53.38  46.19 DELL  Dell Computers

H     99/10/05  22.94  33.56 DGEN  Data General

                       (acquired by EMC on 99/10/07 .3125 to 1)

B+    99/11/01  45.50  66.94 DT    Deutsche Telekom 

B+    99/04/06 132.13 107.38 EMC   EMC (split on 99/05/28 2:1)

B+    99/06/14  31.13  60.94 ERICY Erickson

B     99/04/06  51.50  42.50 FLEX  Flextronics (split on 99/12/22 2:1)

SELL  99/11/01  41.63  50.13 FS    Four Seasons

B++   99/06/14  60.14 116.88 GLW   Corning

H     99/09/07 113.75 179.94 JDSU  JDS Uniphase Cp # (split on 99/12/29 2:1)

B++   99/04/06  60.83  81.95 LLTC  Linear Tech Corp

B     99/04/06  32.75  61.25 LSI   LSI Logic

B     99/12/27  84.94  75.88 LVLT  Level 3 Com

B     99/04/06 163.19 171.00 NOK   Nokia (split on 99/04/09 2:1)

B++   99/05/12  25.06  36.81 NOVL  Novell

H     99/04/06  65.66  91.08 NT    Nortel Networks # (Buy BCE)

                       (split on 99/08/19 2:1)

B+    99/10/05  46.69 103.38 ORCL  Oracle System

B+    99/06/14  93.56 136.25 PHG   Phillips Electronics

B++   99/05/12 106.06 149.75 PMCS  PMC Sierra (split on 99/05/14 2:1)

B++   99/05/12  49.88  64.50 QLTI  QTLI Phototherapeutics #

                       (split on 99/10/12 2:1)

B++   99/12/27  44.44  48.63 RIMM  Research in Motion

B++   99/12/27  24.47  28.31 SDC   Santa Fe International

B     99/12/13  39.00  40.69 SEG   Seagate Tech

SELL  99/06/14  35.97  50.88 SFA   Scientific Atlanta

B     99/04/06  53.75  90.50 SLR   Solectron

B     99/08/19 129.02 234.38 SNE   Sony

B++   99/12/27  41.38  45.06 SU    Suncor Intl

B     99/04/06 130.94  71.88 SUNW  Sun Microsystems (split on 99/04/08 2:1)

                       (split on 99/12/07 2:1)

B     99/08/06  31.00  26.06 TLM   Talisman Energy Inc #

SELL  99/04/06 109.48  93.95 TXN   Texas Instruments (split on 99/08/16 2:1)

B++   99/10/05  50.27  68.50 WMT   Wal-Mart Stores

B     99/09/27 186.00 407.25 YHOO  Yahoo!

In addition we recommend the following Closed End Funds, based on the assumption that Third World economic downturns are not going to last forever and that their stocks are now showing superb technical strength

B++   99/11/09  15.14  17.56 BZF   Brazil Fund

B++   99/11/16  10.50  11.06 FAK   Fidelity Adv Korea

B++   99/04/06   8.88  17.63 IFN   India Fund

B+    99/11/09  97.06 108.13 TMX   Telefonos de Mexico

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