Market Conditions

There are few people now saying that stocks are in any sense undervalued so upside potential may be limited from here. Even the redoubtable Abby Joseph Cohen is looking only for gains of the order of 10 percent in the major indexes for 2000. So should we be discouraged? Emphatically no! Yes, it may well prove more difficult in the coming year to find stocks that double and triple but there is little reason to expect the start of a major bear market. In the kind of market conditions we foresee, success or lack of it will hinge on which stocks you buy and which ones you avoid. In sum, buy the strong charts and stay away from poor ones like the plague. It has been remarkable even over the past couple of weeks how many of the strongest stocks simply keep on going. We downgraded the timeliness of some of the star performers like Applied Materials and Advance Micro Devices only to see them continue to be the star performers. On the other hand, we may have made a mistake dumping Texas Instruments, selling near an intermediate low only to have it turn smartly up again. Same thing perhaps with Scientific Atlanta, which was acting poorly and then came back to life with a big gap up. Still we don't see buying back either of these stocks right here. On the other hand, it looks like a good move to have banked our profit in Four Seasons while it was there.

There is a shadow over the market in the form of the interest rate ogre and Fed Chairman Alan Greenspan. There is now an almost universal expectation of a quarter-point interest rate increase in February and that may be the start of more to come. Nevertheless, the inflation numbers that came out last week were quite good so interest rates may not back up all that much. Market conditions bear quite a lot of similarity to the first half of 1987, which was extremely good for stocks. Although many people got caught in the crash, there were warning signs aplenty before it hit. Right now we have no more than a suspicion that warning signs could develop. We don't see too many problems right now either with interest rates or with technical chart patterns. There are still many, many great stocks to buy.

Among stocks that look particularly favorable to buy now, we include almost all of the oils and oil service companies. Although BP Amoco has been acting poorly, we suspect it will be all right. The problem is the proposed merger with Atlantic Richfield, which will deliver immense savings if it comes to fruition. We expect that to happen but we don't see the point of putting new money into the stock right here. Better to buy other favorites such as Santa Fe (SDC), Suncor of Canadian Occidental Petroleum. It's worth repeating the point that you may be able to have your cake and eat it too by buying Occidental Petroleum (OXY) where the chart is only now starting to strengthen but you can get a dividend yield of 4.6 percent.

This looks like a prime time to buy a couple of our favorites that have set back sharply in the recent decline. For our money Yahoo! has the prime Internet operating franchise. It fell a heck of a piece though it's still almost double the price whereirst recommended it. Similarly, Dell is the prime retailer on the Internet. It could make as much from its know-how as from the computers it sells. It is also worth pointing out that there are many Internet stocks that we do not want to buy, especially including amazon and now AOL. Why would a company in the spacecraft business want to buy a buggy company? (Never mind the pun!)

Biotech stocks continue to boom and we can still see buying them here.
There are many, many so-called value plays that other analysts are recommending. Among them, are stocks like Bell Atlantic and SBC. Well, yes, they may offer value and they may also have reasonable growth prospects. But they have lousy charts. So we don't see the point of buying them.

Stocks to Sell

None
Several of our recommendations seem to have stalled out temporarily but we don't see selling them here. Among those faltering we see BCE, Nortel and Solectron. They have done so well that they are entitled to rest.

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 39.75 101.38 ADI Analog Devices
B+ 99/09/07 76.88 135.63 AMAT Applied Material
B+ 99/04/06 49.00 145.06 AMCC Applied Micro Circ (split on 99/09/10 2:1)
B+ 99/08/06 78.50 68.31 AMGN Amgen Co (aplit on 99/11/19 2:1)
B+ 99/06/14 30.63 30.75 AOG Alberta Energy Corp #
B+ 99/11/16 73.03 84.63 BCE BCE Inc
B+ 99/09/07 84.94 78.69 BGEN Biogen
H 99/06/14 109.78 55.31 BPA BP Amoco Plc
B+ 99/09/07 57.69 103.88 BVF Biovail Corp # (split on 00/01/17 2:1)
B+ 99/08/06 26.38 43.19 CHIR Chiron Co
B+ 99/05/14 40.69 47.00 CLS Celestica # (split on 99/12/21 2:1)
B+ 99/11/16 34.94 46.31 COMS 3Com Corp
B 99/05/12 117.50 107.56 CSCO Cisco (split on 99/06/21 2:1)
B++ 99/06/14 14.59 21.50 CXY Canadian Occidental Petroleum #
B+ 99/12/27 53.38 44.00 DELL Dell Computers
H 99/10/05 22.94 35.12 DGEN Data General
(acquired by EMC on 99/10/07 .3125 to 1)
B+ 99/11/01 45.50 72.31 DT Deutsche Telekom
B+ 99/04/06 132.13 112.38 EMC EMC (split on 99/05/28 2:1)
B+ 99/06/14 31.13 65.00 ERICY Erickson
B 99/04/06 51.50 46.38 FLEX Flextronics (split on 99/12/22 2:1)
B++ 99/06/14 60.14 112.00 GLW Corning
H 00/01/10 115.00 115.50 IDPH Idec Pharmaceuticals
H 99/09/07 113.75 192.19 JDSU JDS Uniphase Cp # (split on 99/12 29 2:1)
B++ 99/04/06 60.83 89.58 LLTC Linear Tech Corp
B 99/04/06 32.75 72.75 LSI LSI Logic
B++ 99/12/27 84.94 86.75 LVLT Level 3 Com
B+ 99/04/06 163.19 184.00 NOK Nokia (split on 99/04/09 2:1)
B++ 99/05/12 25.06 33.69 NOVL Novell
H 99/04/06 65.66 93.56 NT Nortel Networks # (Buy BCE)
(split on 99/08/19 2:1)
B+ 99/10/05 46.69 106.81 ORCL Oracle System
B+ 99/06/14 93.56 153.63 PHG Phillips Electronics
B++ 99/05/12 106.06 164.44 PMCS PMC Sierra (split on 99/05/14 2:1)
B++ 99/05/12 49.88 67.25 QLTI QTLI Phototherapeutics #
(split on 99/10/12 2:1)
B++ 99/12/27 44.44 49.38 RIMM Research in Motion
B++ 99/12/27 24.47 29.44 SDC Santa Fe International
B++ 99/12/13 39.00 43.19 SEG Seagate Tech
H 99/04/06 53.75 84.13 SLR Solectron
B+ 99/08/19 129.02 227.00 SNE Sony
B++ 99/12/27 41.38 45.56 SU Suncor Intl
B+ 99/04/06 130.94 80.38 SUNW Sun Microsystems (split on 99/04/08 2:1)
(split on 99/12/07 2:1)
B+ 99/08/06 31.00 29.25 TLM Talisman Energy Inc #
B 99/10/05 50.27 64.50 WMT Wal-Mart Stores
B++ 99/09/27 186.00 353.00 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 18.88 BZF Brazil Fund
B++ 99/11/16 10.50 11.19 FAK Fidelity Adv Korea
B++ 99/04/06 8.88 16.31 IFN India Fund
B++ 99/11/09 97.06 118.69 TMX Telefonos de Mexico

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