To any interested:Lehman ups financials in portfolio, cuts energy
NEW YORK, April 13 (Reuters) - Lehman Brothers on Monday said it has raised the weighting of
financial stocks in its U.S. investment strategy portfolio because of expectations that disinflation in the U.S.
economy will continue this year.
The financial sector was boosted further Monday by the announcement of two more big bank mergers - a
$60 billion stock-swap deal between BankAmerica Corp. (BAC - news) and NationsBank Corp. (NB -
news). and a $29 billion stock deal between Banc One Corp. (ONE - news) and First Chicago NBD
Corp. (FCN - news) After last Monday's announcement of the creation of Citigroup from the
$83.6-billion merger of Citicorp (CCI - news) and Travelers Group (TRV - news), ''we are raising our
already sizable recommended overweight in the financial sector to 30 percent from 29 percent versus the
S&P (500) weight of 18 percent,'' said Jeffrey Applegate, Lehman's chief investment strategist.
''Disinflation in the 1990s has been the key driver of robust returns for financial assets -- both stocks and
bonds,'' he said. ''We expect further disinflation this year and longer term.''
That expectation bodes well for stocks, in which Lehman has retained its overall U.S. strategy portfolio
weighting of 75 percent, and bonds, in which Lehman has kept a 25 percent weighting.
But it's not such good news for commodity producers and related companies.
Lehman is cutting further its exposure to the energy sector to 2 percent from 5 percent, Applegate said,
noting that this sector is being hit by falling commodity prices.
Crude oil for May delivery is trading at $15.43 a barrel on the New York Mercantile Exchange, down 13
cents from last Thursday's settlement. Oil prices have recovered somewhat from mid-March, when they
plunged below $13 a barrel, the lowest since November 1988, on oversupply fears linked to a dispute
between top producers Venezuela and Saudi Arabia. Before March ended, those two countries and
Mexico agreed to cut production. But energy traders have remained skeptical about the impact of those
production cuts. Looking ahead in the financial sector, Lehman expects these stocks to enjoy further
relative multiple expansion, Applegate said.
The merger of BankAmerica and NationsBank will create the biggest U.S. bank in terms of deposits and
the nation's first coast-to-coast bank, the companies said earlier Monday.
Banc One Corp.'s merger with First Chicago NBD Corp. (FCN - news) will create the fifth-largest U.S.
banking company in terms of assets.
BankAmerica's stock was up 3-7/16 at 90-1/16, while NationsBank's stock was up 4-1/8 at 80-9/16, in
composite trading at midday Monday on the New York Stock Exchange.
Banc One's stock rose 1-7/8 to 63-5/8 at midday Monday, while First Chicago NBD's stock gaine 5-3/8
to 99-3/8, in composite trading on the NYSE.
Several other financial stocks have rallied recently as investors bet on who will be the next takeover target.
At midday Monday, J.P. Morgan & Co. Inc.'s (JPM - news) stock was up 5-6/16 at 145-15/16. And
Merrill Lynch & Co.'s (MER - news) stock was up 4-7/16 at 99-3/8.
In contrast, however, Citicorp's stock was down 6-5/16 6o 159-9/16, and Traveler's stock was down
2-7/16 to 65-1/16, in composite trading Monday on the NYSE.
Lehman, in outlining the adjustments within its stock portfolio weighting, also said Monday it's raising its
overweight position in the health-care sector to 14 percent from 12 percent.
Health care continues to outperform and deliver stable earnings growth, Applegate said.
As a result of its upward shift in health care stocks and downward adjustment in energy investments,
Lehman said it has sold shares in Houston-based Rowan Companies Inc. (RDC - news), which provides
offshore oil drilling services, and bought a position in New York City-based Pfizer Inc. (PFE - news), the
maker of the new impotence drug Viagra.
Lehman also said Monday it is replacing The New York Times Co.'s stock (NYT - news) with Clear
Channel Communications (CCU - news) in the consumer cyclicals sector, but didn't state the reason. |
