Delivery-Date: Sun, 25 Mar 2001 09:59:36 +0100
To: jm@netnoteinc.com
Subject: Market Review Newsletter
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Date: Sat, 24 Mar 2001 23:12:57 -0800 (PST)

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RESEARCH HIGHLIGHTS:  Phillip Morris (NYSE: MO) - The  risks of NOT owning Phillip Morris.
 
- Phillip Morris is likely to generate mid-teens EPS growth in 2002 and 2003.  Its stable earnings growth today contrasts sharply with the earnings pressure facing many other S&P constituents.
- Phillip Morris's  S&P weight is now 0.9%.  While this has doubled since early 2000, iti is still well below its average 1.5% weight of the prior seven years.
- We expect the Company's S&P weighting to cintinue to rise, thereby considerabley increasing the portfolio risks for many investors, currently zero weighted.
- In recent weeks, as the NASDAQ and DOW have fallen, ownership of Phillip Morris has become more universal.  Some growth investors are once again considering the stock.
 
Today, Philip Morris represents a weighting of 0.9% in the S&P 500.  While this weighting has more than doubled from 0.3% in March 2000, it is still well below the 1.1% - 2% weighting it enjoyed between Jan '97 and Jan '99.  We think many of the fund managers still at a zero weight in Phillip Morris are likely to consider reverting to at least a neutral weight over the next few months.  That action should push MO's price toward the $70 range before summer 2001.

The price of MO shares has soared 109% since January 2000, but is still 12% below early-1999 levels. As we have previously commented, Philip Morris earnings prospects are brighter today than in January 1999, and the perceived litigation threat has receded substantially. Further, we think the new administration in the White House is likely to adopt a benign approach to tobacco and remove the subject from the daily agenda (as was the case under President Clinton). In January 1999, MO had a weight of 1.1% in the S&P 500 index. Between January 1997 and January 1999, the averaging weighting of MO shares in the S&P 500 index was 1.5%, with the range being 1.1%-2%. In early 1999, many fund managers - even those with negative tobacco views - adopted a Neutral weight as MO was too great a risk to have at a zero weight. By March 2000, as MO sunk to $19, or just 0.39% of the S&P, the portfolio risks of not owning the shares had receded materially and many funds adopted a zero weight. 

Today, at $48.55, MOs weight in the S&P has more than doubled, to 0.9%, and is likely to continue to rise. In a flat market, if its weight in the S&P rose to its average between January 1997 and January 1999, the stock could trade at around $80. Theoretically, in a flat market, if Philip Morris were 1.5% of the S&P, the price of its shares might approach $80. In essence, given the companys rising weight in the index, many currently underweight funds may, in the near future, revert to at least a Neutral weighting. The risks in not owning MO, as it grows to perhaps 1.5% of the index, become meaningful to any performance measured relative to the S&P.  In our very recent experience, some large funds, consider are reconsidering their stance on MO.  Even among growth managers, interest in MO is beginning to return, with more block trading on up days.  This new net demand for MO should be substantial, especially if the overall markets remains volatile. We expect Philip Morris EPS growth to reach 10.4% in 2001; 14% in 2002; and 15% in 2003. In August 2001, we forecast a hike in the annual dividend per share to $2.32 from the current $2.12..Philip Morris Cos. Inc. - March 5, 2001

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