Gus Cosio says so

Ideas on the Philippine Stock Market

Preserving value

7:00pm   Thursday   May 21, 2009   PSEi 2333.79   PHP/$ 47.23

In the U.S., there is a feeling of relief that they have avoided another great depression although every economist and his dog still says that the economy is still in bad shape.  I personally think that before things could even hope to be better, the down spiral of the economy has to be first arrested, and that is what I think is happening.  From the time that the credit crunch emerged in the summer of 2007 when banks stopped lending each other, the economy headed down hill.  When Lehman collapsed, the already declining economy headed for a tailspin.  Nothing pulls up from that.  The initial victory is that investors now feel that they have seen the bottom and we now have an idea of what the downside risks are.

I was hoping for a deeper consolidation in the Philippine market but after a 29.4 point pull back last Monday, we are up 53 points from that.  The good news is that we have seen some brief profit taking in some stocks.  BPI and AC, while not dropping trongly, appear tobe hitting some resistance for the time being.  TEL has fallen behind the rally and ahs even gone the other way.  TEL traded as low as 2200 today.  I think this is a good level to buy the stock.

Today, FPH surged to 28.50 after languishing to 24.50 the past few days.  We reckon that the stock should be worth around 40.  PNB also did a catch up from recent consolidation.  The stock is now worth 23.25 from 21.25 the other day.

The reason for the market’s resilience is the underweighted portfolios all around.  Many fund managers are still looking to load up at any weakness.  Inadvertently, they’re providing good support for this market.  Would you belive that the stock price of Jollibee (JFC) is even 20% higher today than before the the market collapse due to the Lehman scare.  SMPH, the mall operator, is 6% higher and BPI is at the same price.  Given that earnings of these companies have even grown from Q1 last year, it is not surprising that their prices have held.

What does this tell us.  Stock prices will move up and down, but in the end, the market chooses to buy stocks whose values are preserved.  There is a math to all this and it’s called earnings and yield, both of which invoves very simple arithmetic.

We will probably see the start of consolidation in the U.S.  I hope we see a good correction in the Philippines.  Foreign investors have also started no nibble.  These are the stocks that we feel are cheap: ALI, FGEN, PNB, FPH,GLO, SCC and TEL.  If you’re not yet in the market, it’s a good time to examine these stocks.  If you just want to participate in a long term rally, go buy an equity mutual fund.  Two years from now, you’ll be happy that you did.

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May 21, 2009 - Posted by | Financial markets in Asia

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