Gus Cosio says so

Ideas on the Philippine Stock Market

Long and wrong

6:45pm  Wednesday  16 September 2009  Philippine Stock Exchange Index  2768.61 (-0.74%)

With all the good news coming out, I thought that most investors would be enthusiastic about the market.  Certainly, the bond and foreign exchange markets met the good news of the retail treasury bonds (RTB) and growth in foreign inward remittances with rallies in their favor.  Initially, the market went up 14 points, but what met bulls like me in the stock market in the face of this enthusiasm was a wave of selling from a lot of profit takers.

People were dumping their TEL positions for reasons I cannot explain.  I pored through the news and disclosure and what I stumbled upon was a ratings upgrade by Fitch’s Investor Service.  Fitch even highlighted that the implied subscriber growth for the year was 19% and market share was 52%, numbers that they saw as very positive.  Essentially, TEL is doing as well as they were last year and earnings were not at all threatened in spite of the Meralco acquisition.  At today’s closing price of 2330, the dividend yield is 8.89%.  That is very compelling given that 5 year bond yields had fallen to 5.25% based on yesterday’s auction.  Other first liner stocks that were dumped were EDC, FGEN and MER.  Of these, I think MER is now at a very tempting level at 180.

Of the recent performers, SPH had tanked to as low as 3.45 after opening at 3.70; it closed at 3.60; TUNA rebounded to 2.10 at the open but plunged to 1.98 and closed at 2.00.  I think profits in these plays were just too compelling to pass up.

All was not lost today though because AC seems to have kept itself inside its recent range at 307.50 and ALI stood firm at 11.  Both gained together with second liners PNB and WEB.

If we look at the region, everybody was up except Shanghai and Manila; the favorable retail sales figure in the U.S. and a new incoming government in Japan provided the region’s positive mood.  Unfortunately, some investment banks in the region have downgraded their view on China and the Philippines to under-perform.  What they view as out-performers in the next period wouldbe Korea, Singapore and Thailand.  Nevertheless, I do not see very strong negative on that view considering that there had been net foreign selling in our market over the last five weeks.

What I would like to do is make a case for TEL.  This is the top stock in our market and the debate on taxing text message may be putting a damper on the stock.  I am trying to see if this will really impact TEL that much because there is no way that the government can prevent them from passing that on to their customers.  Perhaps, if I see another sell-off in the stock, I would not be able to resist buying it.  When I think of how much cell phone usage increases during an election year, I’m tepted to buy it even now, but I would not want to stray from my buying discipline.

It is not easy to get it right all the time, and today, I must admit I went long and wrong.  I hope this consolidation does not turn out to be a change of market direction.  If it is, I will not hesitate to cut my losses.

8:50am Thursday  17 September 2009

New york was up overnight as U.S. industrial production rose 0.8% in August after rising 1% in July, a sure sign of a strengthening economy.  Locally, I am of the view that the PSE index was in fact in consolidation from the beginning of August.  Some of the blue chips have become really cheap and I’m guessing that they’ll rebound today.  Small cap stocks like TUNA, SPH, EEI & ISM may be resuming their rise as more trading activity develops.

9:40 am

Market opened up 22 points and poised to move higher.  I noticed LC/B trading at 0.30; it had been stuck below 0.28 for a month.  It may ba making its big move now. Another stock that looks to be a safe trading buy is FPH. It looks oversold with about Php 300 million changing hands in the last 4 trading days as it went down. It looks to me that it is ready to bounce.

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September 16, 2009 - Posted by | Financial markets in Asia

22 Comments »

  1. The market was quite volatile yesterday. It was quite interesting to see how quickly both buyers and sellers were reacting. Could this responsiveness perhaps be an indicator of a more involved market?

    I thought yesterday would be an opportunity to buy TUNA, and it sure was. I just ordered a little too early.

    Comment by Nicole | September 16, 2009 | Reply

    • I think you’re right.The Php 2.8 billion volume though on the low side was pretty decent for a down day. Notice also that price movements were quite mixed among the most actives. With the New York markets up overnight and Tokyo opening up, we could be following that direction. If you can hold something for around 3 months, have a look at EEI. It is trading at 2.38 or 2.40. We think it is worth at least 3.50 but it could take some time to get there. Another stock that is looking to break out is PNB except that there is just some supply looking to profit take above 24.50. When that seller is gone, the market is wide open for this stock to go to 30. We think that it is worth at least 35 because book value per share today is around 42.

      Comment by Gus Cosio | September 16, 2009 | Reply

      • Already have both of those, thanks to the tips on your previous entries. ISM is actually a big favourite of mine at the moment.

        How are book values calculated?

        Comment by Nicole | September 17, 2009

  2. I’m sure you’ll get more detailed and better explanations to follow but I hope this helps in the meantime.

    Book Value = (SE-Preferred Shares)/Common Shares

    It helps to really dig through the financials to get a feel of what assets the company is really carrying, but a Price-to-Book-Value of 1 or lower tends to indicate a fairly/under-valued company relative to share price (it leaves you with a larger margin of error). It’s a conservative way to look at a company.

    Other ratios that may give you a clearer view are PEG, P/E, Current Ratio (or Debt Ratio) and Dividend Payout Ratio. Also don’t neglect the Cash Flow Statement. A book that might help is The Vest-Pocket MBA which is more like a quick reference guide, by no means complete but small enough to carry around.

    Here’s a quote from Peter Lynch:

    ‘When you buy a stock for its book value, you have to have a detailed understanding of what those assets really are. At Penn Central, tunnels through mountains and useless rail cars counted as assets.’

    Comment by ed | September 17, 2009 | Reply

  3. Hi Sir!

    Yesterday there was not much buying demand for stocks despite a bullish close for the Dow the night before. Volume was quite anemic, except for PNB. The local market is very weak right now. I pared down most of my positions. CHIB is the only one left 100% intact.

    Comment by Melvin | September 18, 2009 | Reply

    • Melvin,
      Analyzing the price action since 3 August, I can surmise a consolidation. Every time you have a spike at the opening that takes us close to 2900 on the index or to certain top range in prices of the large cap stocks, we see profit taking. That is why it is the small cap stocks that are taking the slack. It is very safe for the players to hit stocks like TUNA, SPH or even ISM because these stocks have good fundamentals. Furthermore, because they are small stocks, it takes very little to drive prices higher. Take SPH, when it was trading at 3.00, I thought by buying Php 10 million worth, you could push prices up to 4.00 which was what actually happened. That was because many players came in for the ride and volume spiked to Php231 million. Now, the stock has a different life of its own.

      Comment by Gus Cosio | September 18, 2009 | Reply

  4. Sir,

    Do you think, WEB is a good buy right now? Targeting it at .15 or higher. Could you give in your valuable opinion on this stock. Can u give a parking opinion on MEG as well. Thanks!

    Comment by Bullish Trader | September 18, 2009 | Reply

  5. Dear Bullish Trader,
    The scuttlebutt on WEB is that it is squeezing out weak holders for the time being. My view is that it has some more to go. Personally, I don’t have a postion on WEB because I do not have direct info on the company. Where I have reliable info is ISM which is a WEB affiliate and I took a position on ISM with the knowledge that ISM has very good fundamentals. I am also bullish on MEG , but again, I do not have a position; but I chose to buy AGI which holds half of MEG’s market cap. So indirectly, if MEG goes, so will AGI. Nevertheless, I like MEG very much. I just do not have anymore cash because I am fully invested at the moment.

    Comment by Gus Cosio | September 18, 2009 | Reply

  6. The simultaneous issue of RTBs ( almost 25B ? ) and SM USD corporate bond ( almost 24B ) sucked out liquidity from the market. On the other hand the PHP has been strengthening and I’ve always taken this as a bullish signal. Government is looking to sell a stake in PEC, which should help plug the budget deficit and allay market fears. Forward PER of MEG is still cheap. I have re-opened my position in MEG. I am also nibbling at RCB. I think over the long weekend I will read more about ISM.

    Any scuttlebutt on DGTL?

    Comment by Melvin | September 18, 2009 | Reply

    • I used to like DGTL ages ago but always got burnt. I still think that they will be a viable 3rd competitor in the telco space but I would only buy the stock when it is down because right now, I don’t see who’s going to push it up – not fund managers, not M&A activity, not profitability.
      On banks, I looked at RCB but it pales in comparison to PNB or UBP in terms of value and outlook.
      MEG I like and so many other fund managers. People are looking for a pull-back but that will be a very shallow one. the one that has pulled back a lot is its parent, AGI. You can actually follow a spread trade on the two.

      Comment by Gus Cosio | September 20, 2009 | Reply

  7. a little more on SPH. at first i thought their erratic sales (ie. single digits or lower one year and up double to triple digits the next or even in the reverse) was an anomaly. did a little legwork and found out a few things and it seems that they are channel stuffing. heard anything about it? what’s your news on their direct selling initiative? do you see their management as entreprenurial in style or transitioning to a more mature type of organization?

    don’t get me wrong, i still think this is worth a punt at the right price and i still have my previous position. i’m just trying to fill in the gaps however i do understand if you may be reluctant to divulge confidential information.

    Comment by ed | September 19, 2009 | Reply

    • At this point,you should be trading the range in SPH. Personally, I think that it has peaked around the 4.00 level but given that the company may be having a good acquisition, I think there will be other players engaged in the stock. That range is likely to be 3.40 to 3.90 or so. Again, a ranging stock is a good money making opportunity.
      On channel stuffing, manufacturers can do that some of the time but distributors can only accommodate so much. Even SPH can only do that to the extent their cash can afford it. If they channel stuff, they cannot do it permanently or they’ll run out of money.

      Comment by Gus Cosio | September 20, 2009 | Reply

      • great advice but i’m not too comfortable with the investing style. don’t really mind losing opportunities as long as i’m ok with my decisions.

        well channel stuffing is pretty serious to me as you can’t really put a positive spin on it, it’s nothing but short-term and it leaves a bad taste. doesn’t matter how long they can or cannot keep it up, it’s indicative of short-sightedness. what i’ve also found out from my research is that they’re also having severe personnel issues but looked at in a positive light you can view it as building up the organization with a more mature and experienced group, hence moving away from the more aggressive entreprenurial style. the best thing about them is that debt is negligible, more often than not that’s what will sink you.

        i would love to know who that potential acquisition is though. anyway bottom line is i need more room to maneuver with SPH. i’m still looking at PNB. as always thanks for the advice, it’s always appreciated. just to reiterate, great blog.

        Comment by ed | September 20, 2009

  8. that’s it the IMF board just authorized the sale of an eighth of its reserves.

    Comment by ed | September 20, 2009 | Reply

    • Historically, monetary authorities make a huge sale of gold reserves whenever there is a price break-out. The UK did that in the late 80’s and so did some central banks in the early 90’s. I think Russia and South Africa did it during the previous cycle. The thing about gold is to achieve yield, you must sell. Don’t be surprised that buyers in the previous cycle will be selling into this rally and the new positions will provide the base for the new cycle.

      Comment by Gus Cosio | September 20, 2009 | Reply

      • my plan was to sell at year end but i might unload tomorrow. however, i think the last time the IMF did this gold dipped but over the year the price actually went up.

        just curious, how do you personally position yourself in precious metals? futures? physical? stocks? i trade on a pool account with kitco which works out pretty well. risky i know but since i never intend to take physical delivery i should be ok. can’t complain too much about the spread. always looking for alternatives.

        Comment by ed | September 20, 2009

  9. Hi Ed,
    On SPH, I’m hearing some personnel issues as well. As to the acquisition, my source tells me that it could raise top-line by 30%. I have no indication of how advanced the talks were; I though the spike in price last week was in anticipation that a deal might be at hand. Personally, I’m looking to enter below 3.50 and I’m not in a hurry.
    On PNB, I had been a part of PNB at one time in my life and the stock has some loyal following. What I’m seeing is some institutional profit-taking at 26. When that is taken out, we’re headed for 30.
    On precious metals and all commodities for that matter, futures is actually the best for returns because it is a pure market. I only traded financial futures never metals. The time I took a position on gold was through a fund. Today, there are ETFs in different stock exchanges which will get you to trade without the high leverage of futures. My problem with futures is if you do not have a large capital, you could be wiped out very quickly if you’re wrong.

    Comment by Gus Cosio | September 20, 2009 | Reply

    • i’ve looked at GLD but everybody is jumping on it, although the IMF offload makes me do a wait-and-see. futures are way above what i’m comfortable with and i probably wouldn’t be able to sleep but if you ever want to make suggestions later on i fully defer to you!

      Comment by ed | September 20, 2009 | Reply

      • I trade gold indirectly by buying shares of gold miners e.g. Barrick, Newmont, Yamana, NovaGold etc There’s also an ETF that follows an index of mining companies, its ticker symbol is PSAU, I think.

        Comment by Melvin | September 21, 2009

  10. hi melvin,

    thanks. just downloaded the prospectus, will read up on it. by the way, what’s a good oil play nowadays? i share the popular view of peak oil but don’t really know the safest way to play it. my personal opnion is unfortunately people are going to use oil until it get harder and harder to find and then we go to war. currently i have no positions in oil.

    Comment by ed | September 21, 2009 | Reply

    • Hi Ed,

      Direct investment into crude oil futures contracts can be done through DXO, this is an ETF. A broader play on energy would be DBE, an ETF that invests in west texas crude, brent crude, natural gas (?), and heating oil. Or you can invest in energy and other commodities through DBC — which includes oil, copper, corn among others.

      I don’t have much experience buying shares of oil producers. ( Too lazy to dig through their FS ). In June/July I bought EGY ( Vaalco Energy ) to trade the range ( from $3 – $8 ).

      If peak oil is correct and sources of oil are getting scarce then shares of oil drillers and service providers could outperform those of oil producers. You may check Schlumberger and Halliburton ( I think ).

      Comment by Melvin | September 22, 2009 | Reply

  11. thanks. although i think DXO may be an ETN. i see you have a preference for PowerShares =). same here, no time right now to dig through the oil reports. DBC looks interesting, big hype right now for commodities but once it dies down would be good to get in. anyway just taking my time and filling in the gaps. others that have caught my eye for oil are XOM, USO and USL and for commodities its HAP.

    i’m pretty sure we’ll run out of oil soon enough. china and india right now comprise about 5% of oil demand which will probably shoot right up in a few years. you also have china’s loans-for-oil agreements with Russia, Kazakhstan, Brazil and Venezuela.

    Comment by ed | September 22, 2009 | Reply


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