Replies to post #299 on Sector Investing

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Technical Analysis: Breakout
by Paul Shread

July 7, 2003 - A beauty of a breakout on the Nasdaq today (see first chart below). The index gapped straight out of a one-month trading range, which gives a target of about 1770. However, the index closed pretty much right at 1719 resistance - equaling the October rally in percentage terms - so a pullback here wouldn't be surprising. 1685 is support, and 1757 is first resistance. The trend is now up again, but the 1750-1800 area could pose heavy resistance. If you followed the CBOE equity put-call ratio on Thursday, you would have seen heavy put buying on the unemployment data, a good hint that the next move might be up. The S&P and Dow (second and third charts) now must follow the Nasdaq to new highs, above 1015 and 9352. Support is 990 and 980 on the S&P, and 9110-9130 and 9075 on the Dow.

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SOX Components - ALTR, AMAT, AMD, BRCM, INTC, KLAC - 6 Month Daily Charts:

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RobBlack.com MarketWrap

http://www.robblack.com/rb_marketwrap.shtml

The beloved bull market has snubbed the seasonalties, it has blown past the valuations, and it has scorched the shorts. Led by computer- related shares such as Microsoft, after CS First Boston predicted that software spending will increase and Cisco Systems said August orders were better than expected, the S&P 500 added 4 points (+0.4%) to 1,026. The DJIA advanced 45 points (+0.5%) to 9,568. The Nasdaq Composite increased 11 points (+0.6%) to 1,852. The Nasdaq, which gets 42 percent of its value from computer-related stocks, has rallied to a level not seen in 17 months. The S&P 500 and Dow closed at 15-month highs for a second straight day. The Federal Reserve's latest Beige Book report on economic conditions confirmed that the U.S. economy continued to recover in the summer months, with 11 of the Fed's 12 districts reporting increased levels of activity. Most Treasurys closed with modest gains, with shorter maturities attracting the best buying interest. The 10-year Treasury note added 3/32 to yield 4.595 percent while the 30-year government bond slipped 1/8 to yield 5.345 percent.

Strong Sectors: communication equipment, software, storage, paper, homebuilding, lodging, computer hardware, airline

Weak Sectors: aluminum, auto

Top Stories . . . The U.S. economy ``continued to improve'' in July and August, the Federal Reserve said in its survey of regional economies. Eleven of the Fed's 12 regional districts said business activity picked up during the period.

Cisco Systems, the world's largest maker of equipment to link computers, had orders last month that were ``a little bit better'' than the company expected, Chief Executive Officer John Chambers said.

General Motors and Ford., the world's two biggest automakers, said U.S. sales of cars and trucks fell in August.

New York Attorney General Eliot Spitzer, the prosecutor who began the probe that led to Wall Street's $1.4 billion research settlement, said ``illegal trading schemes'' enabled hedge funds to buy mutual fund shares at prices not available to most investors.

Heinz, the world's largest ketchup maker, said first-quarter net income more than doubled as sales of Heinz ketchup and Classico pasta sauces rose.

At a congressional hearing in Washington in late March, Federal Energy Regulatory Commission Chairman Pat Wood urged lawmakers to upgrade the nation's electrical grid, parts of which rely on 50-year-old high-voltage lines, transformers and switches. He warned that the system's reliability was at stake.

Quotes of Note . . . ``The feeling is U.S. corporations are in terrific shape and if you get this bump in growth it will be just explosive for profits. What the market is showing is continuing momentum and it's breaking out. No one wants to be left behind.'' said James Awad, who manages $920 million as chairman of Awad & Associates.

``The full extent of this complicated fraud is not yet known. The mutual fund industry operates on a double standard. Certain companies and individuals have been given the opportunity to manipulate the system.'' New York Attorney General Eliot Spitzer

``We do not trust the ability of FERC to manage these markets for the benefit of the average consumer. Prices in the wholesale markets have gone up because FERC'S market monitoring is defective. Every company that applies is granted the right to charge market rates.'' said Tyson Slocum, senior researcher for Public Citizen, a consumer advocate group in Washington D.C., pointing to the regions where power prices have risen.

Gurus . . . Nick Raich of Zacks tells CNBC that the earnings picture continues to improve, with third quarter S&P profits now projected to rise 13% from the year ago. He also notes that second quarter profits likely will come in at +10%, with a 6% rise in revenues. We have now had five sequential quarterly profit gains, with the third quarter slated to be #6. That is the reason for the bull market.

Corydon Gilchrist, who runs the Marsico 21st Century Fund, is looking for life cycle change stocks that appear undervalued, and cites Marvel Enterprises as an example. Luxury car markers BMW and Porsche have been top performers, and Sports Authority is another special situation name. Other major holdings include Genentech and Veritas Software.

Andy Brooks, block trader at T-Rowe Price, says a lot of investors like the excitement of a break-out, and yesterday was break-out heaven, with the S&P and Dow scoring fourteen month highs, while NASDAQ scored a seventeen month high. And, Price Headly, Chief Analyst at BigTrends.com, says the break-out was a sign of conviction, and you have to respect that the market does not want to go down. (Did somebody say, "famous last words??")

Mortgages . . . The index of mortgage loan activity compiled by the Mortgage Bankers Association of America declined for a fourth consecutive week. On an adjusted basis, the MBA's composite index of mortgage loan applicatons, including refinancings, dropped 1.6 percent to a reading of 628.7 for the week ended Aug. 29. But the seasonally adjusted refinance index decreased by 8.6 percent to the 1981.5 level, its ninth such drop in a row in a reflection of the upward move in U.S. interest rates. Refinancings accounted for 45.9 percent of total applications, down three percentage points from a week earlier, while adjustable-rate mortgages made up 23.4 percent, down from 24.4 percent. For a 30-year fixed rate mortgage, the average interest rate rose on a week-to-week basis to 6.25 percent from 6.22 percent, according to the MBA's survey of mortgage bankers, commercial banks and thrifts.

Financials . . . The Wall Street Journal's "Heard on the Street" column discusses GE's recent deal with Vivendi Universal for its U.S. film and television business. The article raises the question of whether GE agreed to this deal because it really believes in its media business or because a "good-looking" financial deal came along. Despite the competition associated with the media business, the co can use its financial "heft" and strong brand name to smash its competitors. GE's stock has lagged the broad indexes for the past one year and three years, however, it has beaten the market so far this year. According to Bernstein, the co's valuation based on its estimated earnings over the next 12 months is about 15% below its average for the past decade. The deal also quells critics who have suggested the co was becoming a financial services business rather than an industrial co and therefore deserved a lower valuation that would put it on par with banks.

AmeriCredit was cut to Market Perform from Outperform at Wachovia based on valuation.The downgrade comes as ACF shares have traded up to firm's target range of $11 to $12.

General Electric upgraded to Neutral at JP Morgan. They believe that a transaction with Vivendi appears to have good strategic implications for NBC and good financial implications for GE; however, firm says that several of their original concerns on GE remain essentially intact, and that if a transaction with VUE were not to materialize, they would continue to expect GE stock to lag the sector in a recovery.

Prudential downgrades Morgan Stanley to Hold from Buy based on their belief that the stock has quickly recovered to full valuation after selling off in mid-June, and that the co could take a higher than expected credit provision due to changes in policies associated with delinquent card accountts. Target is $51.

Oil & Gas . . . Andrew Cash at UBS said he has "increased confidence" in an earning recovery at DuPont due to emerging pricing power and increasing operating rates. Cash maintained his "buy" rating on the stock, but raised his price target to $54 from $50. He is also confident in the ability of the chemical giant's management to create value in separating its textiles and interiors business (DTI).

Anadarko Petro expects improved finding and development costs. The firm announced that it expects 2003 finding and development (F&D) costs be at the low end of its previous guidance of $7.50 - $8.50 per barrel of oil equivalent. "Anadarko's capital program is delivering results."

BP Amoco upgraded at Merrill Lynch to Buy from Neutral. The firm is saying that upwards earnings momentum in 2nd half 2003, an E&P story that looks to be coming together from both a growth and profitability standpoint, and the potential for a positive surprise on volumes and cost synergies from the upcoming BP-TNK briefing sets the scene for a period of strong share price performance through 2nd half 2003 and into 2004.

Defense & Aerospace . . . Titan awarded by the GSA, on behalf of the Department of Defense, a five-year (one base year plus four option years) task order having a potential value, with options, of $229 million to provide an Enterprise Wide IT system that will enable military personnel and their families to obtain Family Assistance Services via the Internet, email, and telephone.

Transports . . . Merrill Lynch said overnight it was designating American Airlines parent AMR Corp. a "focus one" stock. It said it expects "the combination of lower costs and an improving revenue picture should provide a material boost to AMR's bottom-line." Merrill Lynch expects AMR's industry unit rev outperformance to continue as the company further rationalizes its network/fleet, and says the combination of lower costs and an improving rev picture should provide a material boost to AMR's bottom-line. The firm thinks that AMR's Sept quarter will be stronger than expected, and therefore raises their EPS est to ($0.70) from ($1.50) versus consensus of ($1.11), and thinks the positive momentum of AMR's turnaround plan will carry into 2004, and raises their 2004 EPS est to ($3.50) from ($4.50) versus consensus of ($1.94).

Southwest Airlines said August traffic increased 3.4 percent over the same period a year ago to 4.5 billion revenue passenger miles. The load factor for the month rose by 0.5 percentage points to 73.2 percent, as capacity grew 2.6 percent to 6.1 billion available seat miles.

AirTran Holdings said traffic for the month of August at its AirTran Airways subsidiary increased 33 percent to 689.1 million revenue passenger miles. Capacity increased 19 percent to 885.4 million available seat miles, leading to a 7.8 percentage point increase in load factor.

FedEx was cut at Raymond James to Outperform as the shares are approaching its $74 price target. Firm feels the upside versus the market is not as compelling. Though well disclosed by management in their guidance, a difficult comp versus last year's peak diversion volume (related to the UPS-Teamster's negotiation) could provide a bit of near-term headwind.

Food & Beverage . . . Heinz reported net income of $214 million, or 60 cents a share, up from 28 cents a share in the year-earlier period, amid increased volumes and an improved product mix. Earnings from continuing operations and excluding non-recurring items were 51 cents a share, matching the average analyst forecast. Sales for the quarter ending July increased 3.1 percent to $1.9 billion. The ketchup maker said it was on track to meet its fiscal 2004 earnings, sales and operating free cash flow targets.

Archer-Daniels downgraded at CSFB to Underperform from Neutral and cuts their target to $11 from $13. The firm is citing valuation as well as deteriorating conditions for corn and soybean crops.

PepsiCo reaffirms 2003 guidance of $2.16-2.19, which includes a $0.03 charge from merger costs, the consensus is $2.20.

Consumer Products . . . Avon Products reaffirmed its earnings outlook for the third quarter and full year. The New York seller of beauty-related products sees a profit of 53 to 54 cents per share in the third quarter, and earnings of $2.60 to $2.65 per share for the full year. For the full-year 2003, Avon sees EPS of $2.60-$2.65 per share versus consensus of $2.63.

3M Company defended by UBS and maintains their Buy rating. The firm believes investors should take advantage of any weakness in the shares following last weekend's Barron's article; firm sees the co as more of a top-line growth than cost-cutting story, in part driven by Six Sigma and productivity drivers, with greater R&D efficiency and a cash machine to drive accretive acquisitions. The firm also says the company has considerable operating leverage to an economic recovery in this classic 'chicken cyclical' story. Target is $170.

Restaurant . . . Wendy's International reported August same-store sales at its U.S. company restaurants edged 0.4 percent higher. The company's Tim Hortons franchise is expected to post an increase of 3.5 percent to 3.7 percent at U.S. locations, and 5.1 percent to 5.3 percent at Canada locations. The firm said sales were hurt in the latest quarter by the power outage in mid-August. Wendy's also reiterated its outlook for earnings of $1.97 to $2.03 per share in 2003. The company also said it continues to repurchase shares of its common stock.

Retail . . . For U.S. chain stores, sales momentum slowed in the last week of August, Bank of Tokyo-Mitsubishi/UBS noted in its latest report. The sales index compiled for chain stores rose 0.1 percent in the week ended Aug. 30, reflecting in part seasonal trends. On a year-over-year basis, chain-store sales were 4.0 percent higher than in the final week of August 2002. "By and large, the strong pace of sales set earlier in the month also set the tone for the entire month," said BTM/UBS, which forecast that comparable-store sales growth for August will be in range of 4 percent to 5 percent.

Rite Aid was cut to Sell at Merrill Lynch based on valuation. At 30.1x their 2005 EPS estimate, the stock is more expensive than CVS (15.4x), which is a stable investment grade business that can afford to grow as well as just "recover". Also, RAD is vulnerable to Walgreen's attack in California (where WAG increased square footage by almost 20% last year and has added 7% year to date), where RAD derives an estimated 30% of its sales.

Chico's FAS said August same-store sales in company stores rose 19.4 percent compared to the same four week period last year.

Coach sees earnings of $0.36 versus consensus of $0.34 and sales to be $245 million versus consensus of $234 million. These earnings do not give effect to the 2-for-1 split in the form of a stock dividend payable on or about 10/1 to shareholders of record as of the close of business on 9/17. On a pro forma basis adjusting for the split the company expects to earn "at least" $0.18 compared to an adjusted $0.12 for the prior years 1st quarter.

Walgreen reports 9.6% increase in August comps.

CVS said August same-store sales rose 6.4 percent. Total sales for the four weeks ended August 23 jumped 8.3 percent to $1.96 billion from $1.8 billion in the same period a year earlier. The pharmacy operator said its sales for the period were hurt by the blackout in the Northeast. It added that pharmacy sales took a hit due to recent generic introductions.

Citing recent foreign currency trends that are pressuring its profits in Europe, Office Depot said it now sees downside risk of "a couple of pennies" to its third-quarter results. Analysts are currently looking for a profit of 30 cents per share in the September quarter, on average. The retailer said its North American sales continue to show sequential quarterly improvement "in spite of significantly declining sales in technology" as prices in key hardware categories continue to decline. Office Depot anticipates same-store sales for its North American retailing operations will come in "slightly negative to neutral," below a previous projection for a "slightly positive" performance.

Smith Barney lowers their view of the Supermarkets sector to Market-Weight from Overweight. Although sales trends are improving and supermarkets should benefit from a healthier economy, firm believes that the stocks have "reached the halfway point" in recapturing fair value, and while they do not expect significant earnings misses, they think that beating numbers is not likely. Top pick is Kroger.

Healthcare . . . Laboratory Corp of America said it would pay "a significant monetary sum," dismiss its couterclaims and discontinue the use of the name Diapath as part of a settlement of a lawsuit filed by its subsidiary Dianon Systems against five former employees of Diapath.

AdvancePCS will merge with Caremark Rx in $6 billion deal. This will create a pharmaceutical benefit management company valued at approximately a $12 billion market-cap. Caremark Rx will acquire 100 percent of AdvancePCS outstanding stock. AdvancePCS shareholders will receive value equivalent to 2.15 shares of Caremark Rx stock for each AdvancePCS share, to be paid in Caremark Rx stock (90 percent) and cash (10 percent).

Drugs . . . Wyeth has sent a warning letter to doctors informing them that its antidepressant drug Effexor may cause children aged six to 17 to consider suicide The letter is unusual because the drug is not currently recommended for use by children, the paper said. Wyeth's warning comes after a similar move by GlaxoSmithKline which recently urged doctors not to prescribe its Paxil antidepressant for children under 18 years of age due to data linking it to suicidal behaviour.

Eli Lilly announced this morning news that is a slight negative - may introduce uncertainty into the exact approval/launch timing of Cymbalta, the company's lead pipeline drug for depression.Duloxetine is the active ingredient in Cymbalta - LLY has filed duloxetine both for depression and also stress urinary incontinence (or "SUI"). Two different divisions at FDA have been reviewing these separate, unrelated indications. News today is that the urology division at FDA (who is reviewing SUI indication) has granted LLY an "approvable" letter, but is asking for more pre-clinical (like animal toxicology) and clinical pharmacology data. LLY is saying that this may (or may not) impact the timing of the FDA decision coming from the Neuropharmacology division for the separate depression indication. This introduces new uncertainty into the exact timing of launch of Cymbalta for depression. Previous guidance has been for 4th quarter 2003 approval, and 1st quarter 2004 launch, of Cymbalta - that guidance is essentially being withdrawn until LLY meets with FDA to discuss these issues (may occur sometime in 4th quarter). Recall that yesterday we lowered our 2004 EPS estimates due to higher anticipated launch costs for new products like Cymbalta - today's news introduces even more uncertainty into EPS.

Barr Labs sued by Shire following generic Adderall XR filing.

Biotech . . . Chiron upgraded at Piper Jaffray to Outperform from Market Perform and raises their target to $61 from $50. The firm says their meeting with management confirmed that current Fluvirin manufacturing capacity is greater than 40 million doses (up from 33 mln last year), and while Powderject shipped only 27 million doses last year, firm believes that CHIR expects to ship a significantly higher proportion of its capacity this season. Also, the company is making additional headway in expanding Procleix internationally.

Media . . . The box office took in an estimated $125.0 million this past weekend on a strong opening from "Jeepers Creepers 2" as well as solid follow-up performances from Disney’s "Freaky Friday", "Open Range" and sony’s "S.W.A.T.". Total grosses were 7.7% ahead of the comparable 2002 Labor Day weekend, continuing to aid Quarter to Date totals following a stretch of tough late summer comps. For Regal, Year to Date (beginning December 27) and Quarter to Date (June 27), the box office is now up 0.4% and 4.6%, respectively. For AMC, Year to Date (April 4) and Quarter to Date (July 4), the box office is up 1.7% and 0.8%, respectively. Due to the difference in fiscal calendars, Regal and AMC's year-to-date and quarter-to-date box office performance statistics are not directly comparable. "Jeepers Creepers 2" took the number one spot at the box office with an estimated $18.5 million, replacing "Freddy vs. Jason" at the top of the charts. There were no other new releases during the holiday weekend. In its fourth weekend, "Freaky Friday" jumped to the number two spot (from number four last weekend) with $11.7 million. The summer season (May 2 - September 2) is officially over, beating 2002 results by 2.8%. The remaining three weeks of the quarter will have little impact on results, as no single comparable 2002 weekend topped the $85 million mark and only one film ("Barbershop") broke $20 million in an opening weekend.

Telecom . . . McLeodUSA announced a multi-year wholesale agreement to provide wireless voice services to AT&T Wireless customers. McLeodUSA said the combined offering also allows it to offer current and potential customers wireline and wireless local and long-distance voice services and Internet and data services.

Qwest said second-quarter results met expectations and added that it was "on track" to meet previously stated forecasts for the year. The net loss for the quarter was $91 million, or 5 cents a share after earnings 7 cents a share in the sequential first quarter. Total operating revenue was $3.6 billion, down from the first quarter's $3.63 billion. The broadband network company said the restatement of its 2000 and 2001 financial statements was essentially complete, and will file its financials for 2000, 2001 and 2002 "as soon as possible." The company has significant legal risk from accounting issues and “side deals” to competitors. Less wireline competition due to rural nature of lines. Less wireless exposure, but a free cash flow drain. Opportunity for upside on execution of cost reductions: Management has identified $1 billion in operating and capex cuts. Opportunity to financially rebalance that would benefit the equity shareholders. Qwest has a national fiber asset. that is currently a drain on year over year comparisons but could be valuable in the future with full 271 approvals. Will lose the revenues and significant FCF generated by the directory business by the end of 2003. High financial leverage. More poential risks include the risks that may impede achievement of this price target are:

- Increased wireline competition.

- Regularity resale rates could be lowered.

- Approval for Dex sale could be denied or delayed.

- Qwest is heavily levered, which puts the financial risk on the equity.

- There could be additional financial restatements or additional accounting issues.

- Further reductions in the UNE-P rate.

- Government action over past potential misdeeds.

EMS . . . Solectron started with a Buy at BofA;. Price target is $9. Although the company is a "show me story," they have a high level of conviction that SLR will be able to track towards profitability, a more competitive operating model, and improved ROIC over the next fiscal year under the leadership of CEO Mike Cannon.

Network Equipment . . . Verizon Wireless signed a $1 billion multi-year agreement with Nortel for wireless infrastructure technology. Verizon said it will use the technology to expand and upgrade its 3G voice and data network.

Adtran raised its forecasts due to higher than anticipated shipments of digital subscriber line access multiplexer devices and market share gains in the high bit-rate digital subscriber line market. The networker now expects to earn 34 to 36 cents a share on revenue of $98 million to $100 million in the quarter ending September, above the average analyst estimates of 33 cents a share and $94.2 million, respectively.

Electronics for Imaging raised its earnings forecast for the third quarter due to a better than anticipated product mix, such as increased sales of design-licensed color embedded products. The company now expects to earn 19 to 20 cents a share on a generally accepted accounting principles (GAAP) basis and 21 to 22 cents a share on a pro forma basis, versus prior forecasts of 8 to 9 cents and 20 to 21 cents, respectively. The difference between GAAP and pro forma results is related to acquisitions. Separately, the company said it would buy T/R Systems for $21 million in cash, or $1.57 a share.

Semiconductor Equipment . . . Needham recommends heavy over weighting in the Semi Equipment sector. The firm believes that stocks are still undervalued based on belief that we are heading into an upturn. In a downturn investors collectively use value methods to price equipment stocks, however, in an upturn investors switch to a price earnings method, which should allow significant upside to current price levels that in Needham's view are still reflecting downturn type valuations. Even if the cycle-to-cycle growth is negative 20%, which firm believes could be a worst-case scenario, the stocks are still undervalued. With cycle-to-cycle growth, semiconductor equipment stocks could reasonably be expected to yield returns of 50%to 100% or more over the next 18 to 24 months.

Semiconductors . . . Fairchild Semiconductor reaffirmed its expectation third quarter revenue will be sequentially lower by 4-6 percent. It also said order rates and backlog are improving. "While all market segments show strength, cell phones, computing, displays, power supplies, and consumers have been particularly strong so far this quarter," the company said. "Cell phone bookings have been robust with third quarter orders to date greater than our total bookings for either the first or second quarters this year."

Altera is the number-two player in the programmable logic devices (PLD) industry—which is highly profitable and enjoys limited competition and high barriers to entry. Historically, PLD companies have consistently realized operating margins over 25%. Two companies (Altera and Xilinx) accounted for over 70% of the market in calendar 2002. Long term, expect Altera to benefit from trends associated with improvements in manufacturing technology. First, expect PLDs to continue to cannibalize application-specific integrated chips (ASICs) as increasing development costs make PLDs more attractive for high-volume applications. Second, PLD companies such as Altera have potentially increased their addressable market sevenfold by integrating digital signal processing (DSP) cores, reduced instruction set computer (RISC) processors, and back-plane transceivers onto their chips. Near term, believe the company will benefit from new product cycles at both the high and low ends of the market. Investment risks include: 1) high exposure to communications, 2) execution and operating risk in fragmented growth markets, and 3) the large installed base of its biggest competitor, Xilinx.

Software . . . Gibboney Huske at CS First Boston raised his rating on the enterprise software sector to "overweight" from "market weight" given that belief that discretionary spending by businesses will return over the next 12 months. Among individual issues, Huske upgraded Siebel Systems to "outperform" from "neutral," saying the company represents "the best vehicle" to play a return to discretionary spending, especially in the financial services and telecommunications sectors. He also raised his price target on Siebel to $12.50 from $9, on Intuit to $52 from $50, on Macromedia to $28 from $20, on Adobe to $44 from $42 and on BEA Systems to $12 from $11. "Software has been the odd man out in the recent technology rally," Huske said. "Despite the potential for a rocky third quarter, we are moving unequivocally into the bull camp.After analyzing revenue, earnings revision, and capital spending trends in the major technology vertical end markets, we believe that the fourth quarter budget flush is likely to be at least in line with expectations," CSFB said. "Discretionary spending is likely to improve over the next 12 months benefiting software companies."

Take-Two Interactive raised its targets for the year ending in October to $1.02 billion in net sales and $2.30 net income per share. It said third quarter net sales rose 27 percent over the year ago to $155.6 million. Net income rose to $7.7 million, or 18 cents a share, up from $4.8 million last year, or 12 cents a share. The group said it was buying video game franchises TDK Mediactive in a $22.7 million deal.

USB Piper Jaffray upgraded Parametric Technology to "outperform" on the belief the company is in its best position to become profitable. Gene Munster said his confidence that the company will "get it right this time" stems from confidence in chief financial officer Neil Moses. Munster lifted his price target to $5 from $3.

Electronic Arts downgraded at Wedbush to Hold from Buy based on valuation. The firm is concerned about recent insider selling, the increasing number of stock options granted over the last 3 years, and that the co may have difficulty in making accretive acquisitions with its large cash hoard. Price target is $90.

CSFB initiates coverage of the electronic design automation (EDA) industry with an Overweight rating. The firm expects the Electronic Design Automation mkt to be the fastest-growing segment of the semi value chain, and as the semi industry becomes less vertically integrated with the emergence of the fabless-foundry model. The firm expects the EDA mkt to expand and players with better tools to enjoy greater pricing power. Starts with an Outperform rating and $77 target, Magma with a Neutral and $24 target, Mentor with a Neutral and $22 target, and Cadence with an Underperform and $15 target.

Macromedia started with an Outperform at CSFB and $28 target; recent checks indicate that spending on improving the effectiveness of the online channel is an area in which consultants are seeing significant pipeline growth.Thefirm has also recently raised their online advertising ests and now forecasts a 19% growth rate, which clearly benefits MACR's Flash product; also, MACR's forthcoming Royale product provides a potential further catalyst, and firm believes the stock should trade at a premium to peers (vs in-line now).

Siebel Systems upped to Outperform from Neutral at CSFB . The firm believes that SEBL is near a fundamental bottom given initial signs of stability/growth in its end markets. Firm notes that this not a call on the qtr. Rather the upgrade reflects view that SEBL is optimally positioned for a spending recovery in applications. Target price $12.50.

Take-Two reported earnings of $0.18 per share which was $0.01 better than the consensus of $0.17. Revenues rose 27.1% year/year to $155.6 million versus the $145.2 million consensus. The company xpects 2003 earnings and revenues of $2.30 and $1.02 billion versus consensus of $2.29 and $983.2 million, respectively. The comapny also announces an agreement to purchase TDK Mediactive. TTWO will purchase TDKM for $22.7 mln consisting of (1) $0.55 per share for the 23 million outstanding shares (2) purchase of debt of approximately $9.9 million and (3) $0.2 million to retire outstanding stock options. TTWO expects the acquisition to close in the first week of November.

Wachovia upgraded Oracle to Outperform from Mkt Perform and raises their valuation range to $13-$16 from $11-$14. The firm says a deep enterprise software stack and entrenched account relationships uniquely leverage ORCL to benefit form broad recovery in enterprise software spending, which could likely pick up in 2004 after a 3-year slump. The firm also notes that the stock's valuation is at a discount to its peer group (28x 2004 estimate versus peers at 33x).

Internet . . . FindWhat.com will acquire Miva for $5.5 million. Miva is a supplier of e-commerce software and services to small and medium-sized businesses.

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