Airlines: Reiterates neutral outlook
Analyst: Jim Corridore
As a result of the July 7 bombings in London, investors are likely to refocus on airlines as a possible avenue for future terrorist attacks. Airline security has greatly improved since 9/11, but we can't rule out a future attack on the aviation sector. Also, record oil prices make this a difficult time to invest in airlines in general. We have a Buy on Southwest Airlines (LUV), with an almost entirely domestic network and a strong balance sheet, but we are less positive on most of the other carriers. In particular, we would avoid Delta (DAL) and Frontier (FRNT).
Energy: Maintains neutral fundamental outlook
Analyst: Tina Vital
Brent crude futures fell over $5 per barrel after a series of explosions aimed at London's transport system were linked to terrorism, but the market now appears to be stabilizing on worries about U.S. Gulf storms. With oil supplies struggling to keep pace with global demand, we think worries over attacks on energy add support for higher oil prices, but hurt oil demand on concerns that economic activity may slow. We continue to emphasize large diversified, high-quality names, such as Exxon Mobil (XOM), Total (TOT), ConocoPhillips (COP), and Baker Hughes (BHI), each of which is ranked Strong Buy.
Information Technology: Maintains neutral fundamental outlook
Analyst: Scott Kessler
Following the July 7 attacks in London, we are reiterating our neutral fundamental outlook on tech stocks. We continue to emphasize large-cap and high-quality names we think are attractively valued. Strong buys include Automatic Data Processing (ADP
, Dell (DELL), Linear (LLTC), and Microsoft (MSFT). Themes on which we are focused and see as very relevant, given today's events, are Internet security -- we like McAfee (MFE) and Check Point (CHKP). Our top picks in web access infrastructure are Citrix (CTXS) and WebEx (WEBX).
Property-casualty Insurers and Reinsurers: Keeps neutral outlook
Analyst: Catherine Seifert
We expect shares of most U.S.-based insurers to weaken on July 7 following a series of bombings in London that some news sources are claiming were the work of terrorists. Although it is difficult to ascertain the level of insured losses at this point, we believe this event will re-ignite the debate over the U.S.-based Federal terrorism insurance backstop--set to expire at year-end 2005. The beginning of the U.S. hurricane season may also pressure the group. Our top pick remains Allstate (ALL), with little exposure to the terrorist attacks.