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Subj: THE BULL MARKET REPORT WEEKLY, MARCH 9, 2002
Date: 3/10/02 1:59:44 AM Eastern Standard Time




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March 9, 2002 Volume 52, #6W



Welcome to this week's issue of The Bull Market Report Weekly!

On the Internet, there is no Shortage of Information,
but Wisdom is a Valued Commodity.

MARKET INDICES FROM AROUND THE WORLD
FRIDAY, MARCH 8, 2002

INDEX CLOSE CHG DAY% WTD% MTD% YTD%

UNITED STATES MARKETS
DOW JONES 10572 47 0.5 2.0 5 5
THE S&P 500 1164 7 0.6 2.9 5 1
THE NASDAQ 1930 48 2.6 7.0 11 -1
THE NASDAQ 100 39 1 2.6 8.2 14 -1
THE S&P 400 99 1 0.8 4.0 7 6


TREASURY BONDS
10 YEAR 5.32, up 10 basis points +35bp +46bp +28bp
30 YEAR 5.72, up 7 basis points +22bp +31bp +24bp


EUROPEAN MARKETS
UK FT-SE 100 5286 4 0.1 2.3 4 1
FRANCE CAC 40 4629 13 0.3 3.2 4 0
GERMANY DAX 5360 70 1.3 5.1 6 4


ASIAN MARKETS
JAPAN NIKKEI 225 11886 237 2.0 9.9 12 13
HONG KONG HANG SENG 11233 45 0.4 7.7 7 -1


AMERICAS MARKETS
BRAZIL BOVESPA 13962 236 1.7 -2.7 -1 3
CANADA TSE 300 7910 -48 -0.6 2.6 4 3
MEXICO BOLSA 7192 131 1.9 4.3 7 13



(Please note that all prices are as of the close of trading on Friday, and all changes in price are from the previous Friday.)

COMMENTARY

MARKET OVERVIEW

The major indices extended their recent winning streak (which began last Friday) over the last five trading sessions. On the surface, this might not seem like such a big deal. However, when you consider the incredible force behind this mini-rally (the Dow, S&P and Nasdaq have gained an incredible 5%, 5% and 11%, respectively, since last Thursday’s close), you begin to see why many analysts and investors are in the best mood we’ve seen in quite a long time.

The markets have changed dramatically over the last few years (this is no longer the late-1990s bull craze, where 5% market jumps were seen as “just another day on Wall Street”), so don’t expect these types of astronomical gains to continue. However, we DO think that last Friday (March 1st) represented a key turning point for the U.S. markets, and that the rest of the year is shaping up to be much better than the last few months have been. A host of upbeat economic reports over the last week fully support our belief that the worst is now behind us.

The Dow moved 204 points higher on the week, or 2.0%, to close at 10,572.

The S&P 500 tacked on 33 points, or 2.9%, to end at 1164.

And in technology action, the Nasdaq Composite jumped 127 points, or 7.0%, to finish at 1930.



IN THE NEWS

News on the economic front continued to dominate the headlines. Among the most important reports was an announcement from the Institute of Supply Management (ISM), as its key gauge of non-manufacturing activity jumped to 58.7 from 49.6 last month. (Remember: Any figure above 50 indicates that our nation’s service sector is expanding.) Economists were looking for a more modest increase to 52.2, so the news was seen as a pleasant surprise on Wall Street. However, keep in mind that the ISM just started tracking service sector activity a few years ago. Without a long track record to go by, some analysts have had a bit of trouble deciphering exactly how bullish this week’s report really was. Our diagnosis? The service sector accounts for about 80-85% of our nation’s economic activity, so this week’s news was downright good! We’ll let the pundits and the talking heads on TV argue all they want over just HOW GOOD it really is. Meanwhile, we’d rather spend our time researching high-quality stocks that will benefit from this upturn in the service sector (however large or small it may turn out to be).

In manufacturing-related news, U.S. factory orders rose 1.6% in January, topping expectations for an increase of 1.5%. The figure marks a dramatic increase from December’s 0.7% growth reading, and points to better times ahead for the U.S. economy. Durable goods orders were particularly strong at +2.0% during the month.

And on the political front, Treasury Secretary Paul O’Neill said that he believes the U.S. economy did NOT enter a recession last year. Citing reports of positive GDP growth in every quarter except for 3Q01, O’Neill said, “It seems quite clear now that our economy never suffered a recession.” The most popular measure of an economic recession is TWO consecutive quarters of declining output.

In market action, financial issues were some of the biggest winners on the week as investors jumped back into the economically sensitive sector. As we ’ve mentioned before, lenders perform best when their customers can afford to repay their loans. If the economy bounces back, customer delinquency and default rates should trend lower from here. In addition, brokerage and other market-related financials will benefit if the major indices can show a sustained turnaround. On that note, some of the biggest winners on the week included the likes of E*Trade (ET, $10, up 2), Capital One (COF, $58, up 6) and Morgan Stanley (MWD, $57, up 6).

Elsewhere in the financial realm, Citigroup (C, $49, up 3) unveiled some definitive plans for its Travelers insurance unit. The firm is looking to raise as much as $4 billion in an IPO, as it plans to sell 210 million shares at $16-19 apiece. After the deal takes place later this month, Travelers, which remains one of the leading U.S. car, home and business insurers, will trade as a separate company under symbol TAPA. The spin-off should benefit Citigroup in the near-term by improving its capital structure. Meanwhile, it will also take some of the volatility out of Citigroup’s earnings in the years ahead.

In high-tech land, shares of data storage firms came under pressure this week after industry player McData (MCDT, $13, down 3) warned that it would fall short of Wall Street’s first-quarter earnings estimates. The firm blamed the shortfall on weak spending among its major customers. A number of brokerage giants used the news to lower their outlook for other major industry leaders, including EMC (EMC, $11, unch.). This year is going to be a tough one for EMC, but we still believe it is well positioned to reap huge rewards from this high-growth industry over the long haul.

And finally, a number of major insurance players benefited from a round of Wall Street upgrades this week. CS First Boston added AllState (ALL, $37, unch.) to its “focus list” of core recommendations, calling the #2 car and home insurer its “favorite large capitalization stock” at the moment. Meanwhile, shares of AFLAC (AFL, $28, up 2) moved nicely higher on the week following a Lehman Brothers upgrade on the supplemental insurance leader from “Buy” to “Strong Buy.” Over the past few months we’ve mentioned time and time again that the insurance industry is poised for a big turnaround on the heels of rising premiums and better risk management techniques. Apparently Wall Street analysts are finally starting to catch on here.



A LOOK AHEAD

The battle between bullish observers, who believe that the economic rebound will lead to improved corporate results later this year, and bearish observers, who believe that equity valuations have gotten a bit too rich and that corporate earnings will remain sluggish in the coming year, continues to rage on in full force.

As we’ve mentioned in past commentaries, there’s usually something to be said for BOTH sides of any healthy debate, and this one is no exception to that rule. On the one hand, we fully believe that the economy has turned the corner and that the U.S. equity markets will trend slowly higher throughout the rest of the year. On the other hand, valuations in certain sectors have gotten a bit rich in recent months, so we urge you not to take any undue risks with your portfolio at the moment. If you’re heavy in technology, you might want to shift some of your cash into value or income-oriented issues. By doing so, you won’t reap stellar gains if the bulls are right and the market goes gangbusters. On the other hand, you won’t lose your shirt if the bearish scenario plays out.

Our Value and Income Portfolios on our web site (www.BullMarket.com -- these particular portfolios are viewable only by PAID subscribers to The Bull Market Report Daily) would be an excellent place to begin your research. You also might want to look abroad for better growth opportunities. However, you should keep in mind that the U.S. has historically been the best and safest market in which to invest, and we don’t think that is going to change anytime soon. (See article #2 below for more on this story.)

Good investing next week!



Todd Shaver
Editor in Chief
The Bull Market Report
Washington, DC USA
Educating investors since 1997




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IN THIS ISSUE

1. CITIGROUP SETS TARGETS ON GROWTH IN GERMANY
2. TOP WALL STREET STRATEGISTS LOOK ABROAD FOR GROWTH
3. ORACLE WARNS ON 3Q EARNINGS
4. CONCORD EFS ADDS SIZE WITH ACQUISITION
5. AT&T BROADBAND IMPROVING AS IT HEADS INTO MERGER





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1. CITIGROUP SETS TARGETS ON GROWTH IN GERMANY

The appointment of a well-connected German businessman as chairman of Citigroup Germany is expected to usher in an era of new growth for Citigroup in that country. Analysts say the addition of Mark Wossner, a member of the supervisory board at DaimlerChrysler and chairman of the advisory board at Deutsche Bank -- Germany’s biggest bank -- is an important step in the right direction when it comes to Citigroup’s efforts in that country.

Germany is already the source of one-quarter of Citigroup’s revenues for all of Europe. Under Wossner, Citigroup is expected to make a push to expand its market share in investment and private banking, among other things.

TODD’S TAKE: Other than the Traveler’s spin-off, news has been pretty quiet on the Citigroup front lately. That isn’t necessarily a bad thing, but we’re glad the silence has been broken with news of expansion efforts in the German market. Citigroup is already performing very well in that market, but with the addition of Wossner, we believe it can do much better. And although this is somewhat of a mature market, a number of significant growth opportunities still exist. The company’s head of investment banking, for instance, expects the corporate bond market in Germany to grow to five times its current size over the next few years. Citigroup is the top foreign bond issuer in Germany and one of the top overall in that country, so this is great news.




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2. TOP WALL STREET STRATEGISTS LOOK ABROAD FOR GROWTH

Chief investment strategists at both Merrill Lynch (MER, $53, up 4) and Morgan Stanley are changing their global strategies in light of the recent run-up in U.S. equity markets, but their future paths differ greatly. Both firms are shifting their focus away from the U.S., mainly on valuation concerns but also because of worries over continued fallout from Enron and the possibility of a credit crunch. But while Merrill Lynch is shifting its focus to Japan and emerging economies that move on a cyclical basis, Morgan Stanley has set its sights on Europe.

TODD’S TAKE: Two things of note here. First, both firms are concerned about valuations in the U.S. equity markets. We’re a bit concerned as well, and we caution you to remember that good times haven’t started to roll just yet. Second, their different views of where the action is moving to proves once more that every investor has a different opinion.

To us, neither Japanese nor European equities look very enticing, for although they have potential, it has been way too long since they have backed it up with results. Frankly, a global economic recovery won’t solve Japan’s problems overnight. And as for Europe, despite the highest valuation spread between U.S. and European equities in 30 years, we go along with Merrill’s assessment: “It is hard to get excited about European equities”. The U.S. is a safe-haven market with incredible potential for investors. And while the overall markets may be overvalued based on certain metrics, plenty of outstanding individual stocks are NOT overvalued. Again, take a look at our Value Portfolio for some good ideas.




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3. ORACLE WARNS ON 3Q EARNINGS

Software maker Oracle (ORCL, $14, unch.) warned that it would miss its fiscal third-quarter earnings estimates by a penny a share, coming in below results from a year earlier and the previous quarter. The #2 software company in the world said that it now expects profits of 9 cents a share, down from estimates it made in January of 10 cents a share. The company blamed weak sales in Asia for the shortfall.

TODD’S TAKE: Over the last few days we’ve seen stocks react strongly to favorable economic data. But as investors, we have to keep in mind that although a recovering economy is good overall, aggregate improvements do not mean that tough times are over for all individual companies. Oracle is a case in point. This company is still searching for bottom, and it might have just hit it.

The economy shows signs of improving, but many of Oracle’s customers still don’t have the money to spend on major software investments. They are either bargaining for a better price or shopping with competitors like Microsoft (MSFT, $64, up 3), IBM (IBM, $105, up 1) and SAP (SAP, $36, up 1). The economy will rebound and Oracle’s business will eventually pick up, but that doesn’t mean that we will be immediately returning to blockbuster 1999 sales levels. Oracle will continue to face stiff competition, cost-conscious customers and global economic ups and downs for many months to come.

Oracle will remain king of the database space, but it will face an ongoing fight as it looks to expand from here. With leading products and aggressive sales staff, Oracle is still a force to reckon with, but it is not the Wall Street darling that it once was.




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4. CONCORD EFS ADDS SIZE WITH ACQUISITION

Electronic payments provider Concord EFS (CEFT, $33, up 1) is acquiring Core Data Resources, a privately held provider of ATM processing. Core Data services about 35,000 ATMs. Concord is currently the nation’s largest ATM processor with about 58,000 ATMs.

Concord expects the acquisition, which should close in the latter half of the year, to be neutral to earnings per share in 2002 before adding to earnings per share in subsequent years.

TODD’S TAKE: Terms of this deal haven’t been released, but from our vantage this looks like a great buy for Concord. The deal will help Concord add substantial size in one of the fastest-growing areas of the electronic payments business -- ATM payment processing for retailers. This is great news. By adding a large number of new customers, the deal also sets the stage for excellent cross-selling opportunities for Concord’s other payment processing products.

In the longer-term, Concord can expect this acquisition to produce cost-saving synergies and some exciting new products and services. Overall, this is a solid move by Concord, a leader in what is still one of the most promising fields in the tech industry.




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5. AT&T BROADBAND IMPROVING AS IT HEADS INTO MERGER

AT&T Broadband is making vast improvements in its industry-lagging performance just as it heads into its merger with Comcast (CMCSK, $35, unch.). The #1 U.S. cable company, which Comcast is buying for $47 billion, reported that it would break even in the current quarter due to better-than-expected average revenue per user (ARPU) and lower-than-expected capital expenditures per customer. AT&T Broadband had previously expected to reach breakeven at the end of 2002.

TODD’S TAKE: AT&T Broadband was long seen as a takeover target because its poor numbers meant a buyer had a lot of opportunity to reap improvements out of its vast assets. Comcast won the bidding war for AT&T Broadband, but now it appears AT&T Broadband is doing much to put its house in order BEFORE the acquisition closes.

Just how well is AT&T Broadband doing? Well, at the end of 2001 the company hit ARPU and capital expenditure per customer targets that it had set for late 2004! Obviously there will still be room for improvement when Comcast takes over, but the gains AT&T Broadband has achieved will save Comcast time, money and a lot of headaches.

With AT&T Broadband expected to add about 2.2 million new customers this year (about even with 2001 additions) and efforts in place to bring its network upgrade to 70% completion by year’s end, Comcast’s acquisition is looking sweeter all the time. We like this deal, and we love the dominant powerhouse it is about to create.




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