Gus Cosio says so

Ideas on the Philippine Stock Market

Are all that glitters gold?

11:00am  Tuesday  8 September 2009   Philippine Stock Exchange Index   2856.4 (after one and a half hours of trading)

Gold futures briefly touched the $1,000-per-ounce level this morning in Tokyo, the first time a front-month contract has reached that level since February of this year. December gold subsequently pulled back slightly to trade at $999.  When gold trades up like this, there are some surprises that usually occur.  Gold is usually seen as a harbinger for inflation because of its nature as store of value.  Gold is also seen as the opposite of currencies notably the U.S. Dollar so it is likely that the U.S. currency is headed lower against the Euro and the Yen.

What is more significant I think is that when gold spikes like this, it signals that people’s appetite for hard assets.  While there will always be demand for financial assets, the world’s biggest portfolios will start to adjust asset allocation to put weight on resource and commodity stocks because profit margins will widen in this sector.  Recently, we had seen quite impressive moves in mining shares notably Philex (PX).  There have been speculations as well on start ups like GEO and NI.  While LC & LCB had a big move a few weeks back, it has been in the doldrums except for last Friday when it started to firm up.

In the distant past, spikes in mineral prices had always been good for the Philippine stock market, but that was at a time when the local equities markets were dominated by mining shares.  Today, our market is more diverse and mining stock constitute a very small portion of the index.

So, is gold at US$1,000 and ounce going to affect our market positively? My gut feel says yes.  In this part of the world, only 3 markets are viewed as influenced by resource plays: Australia, Indonesia and the Philippines.  What is notable is that China continuously come to the Philippines for some of its mineral needs notably copper and nickel.  That keeps our market high on the resource based markets in the world in spite of the fact that we have very few operating mines compared to Indonesia and Australia.

Going to the broader market, there has been a lot of talk of consolidation going on.  Friday’s unemployment figures in the U.S. was not at all encouraging as the number rose to 9.7%.  Some analysts are of the opinion that if they counted job-seekers who have already dropped out because of discouragement, the figure would even be greater.  In spite of this negative news, a recent Price Waterhouse Coopers (PWC) survey of large U.S. industrial companies reveal that they were a lot more optimistic about the domestic and global economies today than three months ago.

I think that consolidation will go on for the next two weeks since the Asian markets are just as poised as the U.S. market to reassess whether or not the markets have become extremely optimistic about future earnings.  Instead of an upward trending market, I think we will be trading a range in the headline stocks such as AC and TEL.  What I like about it is that both these stocks have an identifiable range: AC – buy below or at 300 and sell at or above 315; TEL – buy close to 2400 and sell just below 2600.  It takes some patience to do that but that is a game that is worth playing. MBT may also be a buy at below 38 and sell at 40, just to play the range.

As to other counters, I still believe that undervalued stocks like PNB, EEI, SPH,PIP and TUNA should be considered as buys as well.

Advertisements

September 7, 2009 - Posted by | Financial markets in Asia

19 Comments »

  1. Mr. Gus, thanks for inviting me to your blog. I find it a very nice read!
    Its very interesting because we have the same views like on TUNA, as I do think that it is quite undervalued.

    Comment by Ms.Dee | September 7, 2009 | Reply

    • You are welcome, Ms. Dee. I’ll endeavor to make this site worth visiting regularly.

      Comment by Gus Cosio | September 8, 2009 | Reply

  2. Mr. Gus, I am new on your website and I find the information you share very helpful especially for a neophyte on the Phil stock market. Its quite frustrating that now Gold is near the 1,000/ounce level and there seems to be no evident Gold play in the PSE. Both PX and LC/B have already made their ascent weeks back due to the MVP buy in rumors. Now that they are still consolidating on their highs, both stocks continue ignore the sudden surge in Gold prices. How long can both stocks ignore the Gold rush?

    Comment by Kerwin | September 8, 2009 | Reply

    • Kerwin,
      First of all PX had moved already even before gold spiked. LC/B also did the same. My take is that people just want to see the result of the due diligence that MVP’s group is doing before making a big move on LC/B. You know what, to really benefit from the market, learn to be patient coming in and patient in going out even if you’re doing short term trades. Don’t be forced into positions, but buy what you like at prices you are comfortable with. Don’t be pressured by brokers. Better to trade on line because you depend only on your own decision process and perhaps instincts.

      Comment by Gus Cosio | September 8, 2009 | Reply

      • Thanks for the advise sir, I shall keep that in mind.

        Comment by Kerwin | September 9, 2009

    • A little unsolicited info. Gold and silver trade at a ratio and historically it’s been around 50. Currently it’s at 60 and a few months ago it was hovering at around 80. Silver may have more to jump as it catches up to gold along with it being an industrial metal which will move with production. Caveat: I’m no expert and as always please correct me if I’m wrong. Thanks.

      Comment by ed | September 10, 2009 | Reply

      • There are regular spread traders between gold and silver. You can actually go short one contract and long the other in NYMEX. Spread trades are quite tricky though because if you do not have the ratio right nor the execution timing in the button, you could still lose money on the trade.

        Comment by Gus Cosio | September 10, 2009

  3. Is it still undervalued? I never bothered to look at it before since I was not familiar with its business…

    Comment by wren | September 8, 2009 | Reply

    • Wren,
      If you are referring to TUNA, it may still have good value behind it but I must admit, today’s 20 cent run makes it a little dangerous if you’re just looking to trade it. If you’re planning a longer time frame, I like the stock.

      Comment by Gus Cosio | September 8, 2009 | Reply

      • I agree. The overall run today was exciting- I didn’t expect it.

        Comment by Ms.Dee | September 8, 2009

  4. Sir :

    Big drop in US dollar index today. Gold inverse correlation still holds. After pricing in the economic recovery, now the market has to tackle inflation.

    Comment by Melvin | September 8, 2009 | Reply

    • Most economists agree that it is too early in the recovery to be worried about inflation. Inflation is really a product of bottlenecks in resources. spike in commodity prices are normal market driven forces. There are no perceived shortages yet to warrant supply bottlenecks in these commodities so these price movements would likely be self correcting rather than inflationary.

      Comment by Gus Cosio | September 8, 2009 | Reply

  5. SPH is going up! what’s with the rally? I don’t know what’s behind it…

    Comment by wren | September 8, 2009 | Reply

    • It looks to me that a few of the players see very good possibilities for this stock. Even at 3.45 the dividend yield is above 6% and the trailing P/E is only 8X. The stock is cheap and will likely find fair value at or above 4.

      Comment by Gus Cosio | September 8, 2009 | Reply

      • Wow, It must be just now that they discovered it, since it touched the 3.5 mark now.. hehe

        Comment by wren | September 9, 2009

  6. Sir:

    Whats your take on MPI? It plunged 13% in todays trading.

    Comment by czar | September 9, 2009 | Reply

    • Czar,
      MPI announced a stock rights rights issue at 3.50 which would in effect double the amount of shares outstanding. I do not have the full details yet. I just heard it from the brokers. Anyway, my computation is that the ex-rights price should have been around 4.60 to 4.70. I closed at 5 so there is already a 30 cent gain assuming that you buy the rights at 3.50. The 13% drop is not really a drop but just an adjustment.

      Comment by Gus Cosio | September 9, 2009 | Reply

  7. I’m considering buying TUNA and PIP… they are undervalued and I think, it’s a good buy, and yeah, looking for it as a longterm stock!

    Comment by Bullish Trader | September 10, 2009 | Reply

    • Dear Bullish trader,
      PIP is trading at 12.1X trailing P/E;10.9X 2009 P/E;9.4X 2010 P/E the latter two on consensus forecast. Trailing price to book is 1.69X. Earnings wise, it is undervalued. Price to book wise, it may be reasonable considering it has a very strong franchise. I know for a fact that soft drinks do well in times of El Nino which will be coming soon. With that, we shall be having election which historically is good for soft drinks.
      Tuna is definitely undervalued at 7.6X 2009 & 4.1X 2010 forecast earnings.
      I would caution the timing of buying because they look a bit overbought for the time being. My advice is to money manage your buying.

      Comment by Gus Cosio | September 10, 2009 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: