THE QUARTERLY MARKET SECTORS TO WATCH

The Third and Fourth Quarters of 2001 Commentary - by L.K.S.* July 28th. 2001

Investing and other branches of Economics are much an Art as Science. After the Charts, graphs and other quantitative methods, the social half of Economics - The Human Behavior factor - generally has the final say! This bull market, although long and exciting, will not last forever. As such, an informed investor will be positioned better to withstand the coming economic downturn with the least exposure to losses. If you are a first time visitor to this column, we advice you to visit our archives section (link is below) to get a proper understanding of our methods.

INTRODUCTION

Due to the poor state of the US economy, we are extending our First and Second quarters forecasts to the Third and Fourth quarters because not much changes will be seen from first half.

UNITED STATES AND CANADA

INTERNET MEDIA COMPANIES ARE VULNERABLE!

.  Internet companies have gone through the outrageous valuation stage, funds burn rate reduction stage, and then the profitability stage. But guess what? there is still a very tough stage to go through and we can see only about six (yes, 6) of the 50 major online giants surviving this next stage - vulnerability for a takeover. After almost a year of the stock market meltdown, most major Internet players spent (some squandered) their hard earned money on branding, efficiency and profitability, but how does the market reward them? low stock valuation. A low stock valuation means a sitting duck for cash rich traditional media, which can't compete with their online counterparts, but can easily buy them outright. How bad is the situation? Almost every pure Internet player now finds itself valued at least 50% less than what it was last year by this time. Only AOL Time Warner and eBay seem insulated from this. Who is the most attractive to acquisition? Yahoo! For the fact that these companies are not initiating stock repurchase plans seems to us how dire their financial state might be.  We appreciate your feedback on this subject at our Discussion Forum.

CANADIAN MINING AND EXPLORATION COMPANIES

Canadian mining and oil/gas exploration companies have one of those rare moments to make good money at the expense of their global rivals. Canadian Gold mining shares are going to gain as labor union problems affect gold production in South Africa. Oil and Gas explorers are also sitting in a very good position as OPEC seems intent on maintaining discipline in the ranks and working with non-OPEC producers (Saudi Arabia and Venezuela are supposed to the meeting with Mexico on oil production concerns as I write this). We appreciate your feedback on this subject at our Discussion Forum.

ONLINE BROKERAGES AT THE BAT!

North American online brokerage stocks have taken a beating lately, and who hasn't. However, beyond that general market torture, this is a sector ripe for good rewards and do have a very bright future ahead of it. Companies like E*Trade Group, Charles Schwab, National Discount Brokers (NDB), etc. were closely watched to see if they can pull it off, and they have! The crash and burn of the Dot Coms haven't affected them, nor has long-term revenue fears. What is now left is to carry this North American experiment globally and allow even villagers in say, Africa or Latin America armed with a cell Phone to play the global financial markets. That, is the grand vision and reward, which most in the sector are already close to.

THE LAST STAND OF ONLINE RETAILERS

This Christmas holiday shopping season will decide once and for all if online retailers have what it takes to tame the ever growing online subsidiaries of brick and mortar stores. Online retailers are failing not because there are too many of them, but because their brick and mortar counterparts are beginning to do things right: build web sites that are easier to use; merchandize can be returned to the nearest store; and recently, you can use store cards online (if you have been a fan of this column for at least a year, we have already discussed these issues in this column). Now then what is next in this sector? I don't think Walmart.com, Kmart.Com, and the other brick and mortar dot coms will rest until their are no Amazon.Com, Gifts.Com, and the other pure internet players. Before we forget, the Department of Commerce's survey saw growth in online retail sales, but mostly from brick and mortar appendices.

BUSINESS TO BUSINESS (B2B) REVISITED

Despite a Prudential Securities' downgrading of the major Business to Business (B2B) companies, and the seismic shockwave that went through the sector, we are still bullish on the sector. B2B retailing is really the natural progression step for the web and major corporations, especially since a good track record can be found in Electronic Data Interchange (EDI). B2B powerhouses like Ariba, CommerceOne, and i2 Technologies have signed and gone into co-development agreements with major industrial concerns like Ford Motor Co., General Motors, DaimlerChrysler, Toyota, etc. who spend literally tens of billions of Dollars a year on supplies, procurement, and are major EDI users. These industrial giants are quickly becoming the partners to these B2B ventures. Secondly, the eMarketplaces B2B companies provide will save billions of dollars to companies who take advantage of it. To ignore these B2B leviathans  in the short run will be rather expensive in the long run. As always, your views are welcomed at BusinessJeeves.Com Discussion Forum 

BIOTECHNOLOGY AGAIN!

Now that the human genome sequence has being mapped, people are beginning to wonder when the information could start turning into cash. One has to give to gene related companies though, the idea to publish the human gene sequence in respected scientific magazines will not only put the human genome project on the front burner, but could actually help their sagging stocks at least for the next few quarters. Recent strong earnings reports from sector heavy hitters like Amgen only shows what a bright future the sector has.

EUROPE

EUROPEAN TELECOMMUNICATIONS PROBLEMS

Business and Finance is an interesting thing. A couple of months ago, European telecommunications companies took on heavy debts as they went around taking over the smaller players so as to protect themselves from their US counterparts who were hungry for expansion too. Then, it made perfect since to acquire these companies and promise investors a partial floatation (tracking stocks) of certain units. Now however, things are different. A good example is the demise of France Telecom's partial floatation of its Orange mobile phone unit, which has being struggling since launching this February. British Telecom is now considering a full floatation of its BT Wireless unit as pressure continues to mount for it to reduce its massive debts. With markets all over the world struggling, we don't expect relieve to come in very soon.

TURKEY REVISITED

Turkey's financial problems haven't gone away, they are only on the back burner, now that South America, especially Argentina seems to be taking the forefront on currency crisis.

ASIA

Asia, (including Japan) is actually going to do quite well. Regional powerhouses like Japan, South Korea, Singapore, Hong Kong, Taiwan, and Malaysia will lead the pack Telecommunications, Banking, Technology (especially Software & manufacturers) will do quite well.

Nippon Telephone & Telegraph will do very well as the world moves into handheld devices to access the web. Over the years, this company's cellular & wireless unit have been hard at work building a sophisticated network in Japan that is the model for the world. We expect this wireless unit to be spun off, and to expand its operations to other parts of Asia. Singaporean, Malaysian, and Hong Kong telecommunications companies are not sitting by and watching "DoCoMo" have all the fun either. Recent hostile moves between Singapore and Hong Kong telecoms are just the signs of things to come-acquisitions and mergers across boundaries.

India's software industry has had a spectacular run in the past few years, and we expect more to come. Companies like Amdahl, Infosys Technologies, and Satyam have opened the door for many Indian software companies to tap the rich North American capital markets.

Technology components manufacturers in the region are going to enjoy a very strong year. Cellular and wirele