A greasy situation
8:00 am Friday 25 February 2011
The markets around the world continue to react to oil prices. I noticed that the European markets, except for the Swiss, were not as badly sold as the previous day. The U.S. indices were off overnight but only slightly. As a matter of fact, the Dow transportation index was up 0.45%. The markets recovered when oil prices eased a bit. I will not hold my breath for oil prices to go down though.
We are now living in a 100 dollar a barrel oil price scenario and prices of all commodities and goods and services will automatically adjust to that. I think that even if the Libya situation resolves itself soon, which I do not think it will, the anxiety of such sensitivity of oil prices to middle east politics will keep buyers inclined to keep stock levels higher than usual. That case can certainly be gleaned from China who in recently have tried to be ahead of the commodities curve.
Anyway, my worst case scenario is a re-rating of GDP growth prospects downward. At year-end, I was of the opinion that the Philippines had a strong growth trajectory due to prospects of heavy investment spending through Public Private Partnership (PPP) initiatives. I have become less enthusiastic about the prospect because I think infrastructure investors will be more discriminating with the global scenario becoming less stable.
I guess my message is that we should not expect a market recovery soon rather we should be open to the idea that this situation could languish for sometime. Some people may find it worrisome and perhaps a bit late to adjust portfolios. I reckon that if you have cash on your side, you may miss the first wave of a recovery rally, but you’ll still be able to find some bargains. My suggestion is to stick to fundamentally stong stocks which the market continues to favor. These are the power and related stocks like DMC (which owns part of Maynilad), MER, MPI, AP, EDC and MWC. The idea remains to be stability of earnings so you can throw in SCC in there also. If you get the urge to come in, I think you should stick to a narrow selection of highly tradable stocks without abandoning a trading mindset, at least not yet.
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Gus Cosio at the Merrill Lynch 2008 Rising Stars Conference in Singapore
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Sir, among PX and AT, which would you recommend more?
Hi Sir Gus,
Thanks again for another informative post. We really need to be cautious on the market at this point. What are your thoughts on MA?
MA has one of the richest reserves although not as rich as LC. The difficulty with MA is the unpredicatability of its management. More often than not, MA is a play on its potential. It has been in operations for so long yet it has not achieved anything close to what PX has done. FYI, I own some MA shares.
What’s your take on PCOR, LPZ and property stocks particularly VLL and SLI? Thanks and good morning.
As what i see, MPI has already formed a short bottom, maybe good for a technical bounce play?
I also recommend MER at 220, then sell at 230.. its currently trading at that range and it is pretty volatile.
AP would be a buy at 27 low or 26++. EDC buy at 5.6 or 5.5 range.
I currently have DMC at cost of 33.1 hope its a pretty good bottom already.
What are your thought about it Mr. Gus? thanks!
I guess the market does not favor VLL which by the way is now trading at more than 50% discount per BV.
Erratum. Almost 50% discount.
Does this mean you are buying? Or do you think the discount will increase further?
From a long term perspective, this is a good buy. For short-term, I do not know. Maybe it could go down further, but technically it is already oversold.
Hi Seth. Im heavily invested with VLL. At investor’s point of view, I’m not willing to sell it anymore, as you said almost 50% discount vs bv. I am confident with VLL because their sales for the past 2 years are good, EPS good and above all, the country’s biggest home builder. Good luck to all.
Seth,
I see VLL as a credible real estate development firm with a lot of potential. This view is shared by a good number of property analysts. The problem is the market has given more focus to stocks like MEG or SMDC for affordable housing. I am sure that eventually, the market will see the value of VLL.
added more capital today, bought DMC AP and GMA7
Cliff,
I wonder what made you decide to buy into those three companies. None of them are undervalued with respect to books. Seems inconsistent with your value investing strategy.
i put more importance in PE ratio and growth rather than P/bv
Oh ho.. cliffhanger, is this because of reading the ‘One Up on Wallstreet’?
“Winning on Wall St”. is much better…haha..It tells you not to buy ( 3-6 months) any stocks when the market is going against you(bear Market)..I think everything will bottom by mid 2011..Pse3000-3200
Sir Gus,
Just wondering how much can we trust those technical analysis tools like MACD, DMI, RSI charts for our trading?
Most the technical indicators you mentioned are oscillators. In a downtrend PH market, you can throw them away, since we don’t allow short selling.
Oscillators are supposed to predict the peaks and bottoms. However, they are reliable only in the following situations:
1. predicting the bottom in an uptrend market
2. predicting the top in a downtrend market
Before you use an oscillator, you must identify the trend first in a longer time frame. Then set your oscillator parameter in a shorter time frame. Oscillators can be used as an entry or exit signal.
see my post below (#5)
You cannot trust them during a downtrend if you are trading philippine stocks. That is because ordinary market participants are not allowed to do short-selling (i.e., sell high, buy low). Trend following indicators such as MACD and DMI should accord with the trend; unfortunately, now we are experiencing a downtrend. On the other hand, oscillators like the RSI are better for trading ranges (i.e., clear support and resistance are apparent). If I were you I would look for reversal signs to gauge when the downtrend is about to end.
Chris M.,
Im glad you are starting to make more sense. Yes you are right on what you said about technical analysis during a downtrend. As for me, faith in the fundamentals should keep a bit of sanity in the midst of seeing substantial paper losses to date. I believe that Philippine fundamentals are intact and the outlook for the Philippine economy is brighter than ever (check the link below)
http://www.bworldonline.com/content.php?title=Philippine+potential+cited&id=26912
chris munti, Chris M.
I am glad you guys are in agreement. About the link above, yes I am proud that the Philippines is considered part of Goldman Sachs’ Next 11: a list of countries that have the highest growth potential in the 21st century.
thanks for the link Chris Munti!
more power Chris munti. keep the wisdom flowing
Good I hv 5 outt of the 7 stocks you mentioned and luckily, had most of them at their bottom price:)
I hope your right
Bought Ceb @76sh/ and Tel last friday…lipad na kayo sa Monday ha…hehe
Shan, what are your prices for the stocks you have?
Are you going to Mt Carmel Church. Yesterday, I thought I recognized you at the very front of the pew.
yes, I go to church in mt. carmel chruch. my house is in new manila.