Market Conditions

Interest rates and the US Dollar are moderately favorable. In all likelihood, rising interest rates (and declining bond prices) have run their course or are close to doing so. The US Dollar looks as if it may have finished a significant correction. We have just entered a period from November to March when stocks tend to go up, often substantially.

There are five stocks in the NASDAQ that we look at closely, because they constitute such a large part of that index. Microsoft (MSFT) alone comprises about 15 percent of it. The other four are Cisco (CSCO), one of our recommended stocks, Dell (DELL), Intel (INTC), and MCI Worldcom (WCOM). Of these Cisco remains a strong buy. WCOM, although not formally recommended, looks very good now. INTC we have recommended but now prefer not to own it. DELL looks like an outright sell. MSFT looks no better than a hold according to our criteria.

Most of our recommended stocks are either going to new highs or are recovering well. The exceptions are our petroleum stocks, which in the near term, have been going sideways to down. We came close to making the decision to liquidate them because of their lackluster performance compared with other stocks that were doing so well.

We decided not to sell out our oil stocks for several reasons. First, as we have seen with many great stocks, there can be quite significant setbacks that do not violate the major up-trend. Second, we have been looking at the supply and demand fundamentals for oil. Our understanding is that oil supply could tighten significantly in the next year or two even without any upheavals in Russia or other potential trouble spots among oil producers. Given the apparent tightening of supply, it seems improbable that oil will set back much under $20 per barrel. Third, with oil prices of $20 or more, most producers will be coining money. Few of them were actually losing money at $10 per barrel. So the doubled price from the low should provide the basis for huge profits. We have just seen some of that with the announcement of a 72 percent increase in profits compared with the comparable quarter last year for our recommended stock BP Amoco. This result comes, moreover, before most of the economies resulting from the amalgamation come through, and also of the takeover of Atlantic Richfield that is just going through now. Fourth, there is merit in maintaining some element of diversity rather than concentrating almost exclusively on IT stocks. Apart from the IT, there are relatively few stocks that are worth the risk of owning in current market conditions. The fact is that the primary growth engine is the general area of information technology. If you want to back winners and not back losers, then there is no substitute for investing predominantly in that area. This means selling stocks in other areas that are performing poorly, and certainly not buying value simply for its own sake. This is a two-tier market and likely to remain one as far ahead as we try to foresee.

As usual, we have downgraded the timeliness of some stocks that have become rather extended as well as some that have been performing poorly since the previous report. The downward thump in QLTIF is worrisome but not disastrous. The upward extension in JDS Uniphase is so remarkable that it must be regarded as a high risk to put in new money here. On the other hand, we have no problem letting the profit run. Our patience with Novell looks to be paying off, almost warranting a fairly strong recommendation to buy it again but we hold off for now on that.
Stocks to Sell

None

New and renewed recommendations

We are adding two stocks in emerging markets. As a general rule it might seem that investing offshore involves substantially higher risks. However, investing in emerging markets can bring very superior returns if you get the timing right, and it can also provide an element of diversification. The secret is just to make sure you don't put too many eggs in the same basket.

Brazil Fund Inc. (BZF) $15.14
This is a closed end fund traded in New York. You get the advantage of management concentrating in this area in conjunction with a chart pattern that appears to be making a major new upturn. This is the kind of stock that can double, triple or more with a downside risk from here of perhaps 25 percent.

Telefonos de Mexico (TMX) $102.06
This stock is already starting to take flight. However, it could keep on going. The major telephone company in Mexico can be expected to have far more rapid growth than similar companies in mature economies.
List of Current Stock Recommendations:

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 f 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.

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 59.38 ADI Analog Devices
B+ 99/09/07 76.88 97.19 AMAT Applied Material
B+ 99/04/06 49.00 80.63 AMCC Applied Micro Circ (split on 99/09/10 2:1)
H 99/08/06 78.50 85.44 AMGN Amgen Co
H 99/06/14 30.63 28.88 AOG Alberta Energy Corp #
H 99/06/14 38.28 38.98 APA Apache
H 99/09/07 84.94 68.25 BGEN Biogen
H 99/06/14 109.78 55.41 BPA BP Amoco Plc
B+ 99/09/07 57.69 70.00 BVF Biovail Corp #
B+ 99/11/01 53.58 53.77 C Citigroup
B++ 99/08/06 26.38 30.00 CHIR Chiron Co
B+ 99/05/14 40.69 60.63 CLS Celestica #
B++ 99/05/12 117.50 75.31 CSCO Cisco (split on 99/06/21 2:1)
H 99/06/14 14.59 19.36 CXY Canadian Occidental Petroleum #
H 99/10/05 22.94 23.01 DGEN Data General
(acquired by EMC on 99/10/07 .3125 to 1)
B++ 99/11/01 45.50 49.13 DT Deutsche Telekom
B 99/04/06 132.13 38.25 EMC EMC (split on 99/05/28 2:1)
H 99/08/09 86.31 38.25 ENE Enron Corp (split on 99/08/13 2:1)
B+ 99/06/14 31.13 44.38 ERICY Erickson
B++ 99/04/06 51.50 74.13 FLEX Flextronics
B+ 99/11/01 41.63 39.88 FS Four Seasons
B++ 99/06/14 60.14 81.88 GLW Corning
H 99/09/07 113.75 191.13 JDSU JDS Uniphase Cp #
B++ 99/04/06 60.83 73.95 LLTC Linear Tech Corp
B 99/04/06 32.75 57.19 LSI LSI Logic
H 99/05/12 25.06 21.19 NOVL Novell
B 99/04/06 163.19 116.50 NOK Nokia (split on 99/04/09 2:1)
B 99/04/06 65.66 69.45 NT Nortel Networks # (split on 99/08/19 2:1)
B++ 99/10/05 46.69 59.44 ORCL Oracle System
B++ 99/06/14 93.56 107.19 PHG Phillips Electronics
B++ 99/05/12 106.06 95.63 PMCS PMC Sierra (split on 99/05/14 2:1)
B++ 99/05/12 49.88 35.06 QLTI QTLI Phototherapeutics #
(split on 99/10/12 2:1)
B+ 99/06/14 35.97 61.67 SFA Scientific Atlanta
B+ 99/04/06 53.75 85.13 SLR Solectron
B+ 99/08/19 129.02 164.75 SNE Sony
B+ 99/04/06 130.94 111.88 SUNW Sun Microsystems (split on 99/04/08 2:1)
H 99/08/06 31.00 26.19 TLM Talisman Energy Inc #
H 99/04/06 109.48 92.20 TXN Texas Instruments (split on 99/08/16 2:1)
B+ 99/10/05 50.27 58.45 WMT Wal-Mart Stores
B+ 99/09/27 186.00 197.19 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++ 99/04/06 8.88 12.94 IFN India Fund
B++ 99/04/06 8.05 12.92 JOF Japan OTC Equity Fund

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