Gus Cosio says so

Ideas on the Philippine Stock Market

Rotation, Floatation

10:10am  Thursday  1 October 2009  Philippine Stock Exchange Index  2808.04

In spite of falling stock prices in New York overnight, investors were rejoicing because the Dow and the S&P just ended their best quarter in 11 years.  In other words, this was the best quarterly performance since the initial stages of the “dot.com” boom of the late nineties.  Indeed ist is one for the books.  I  guess from running scared at the end of 2008 to total desolation in 1Q2009, investors had come to the realization that it was not yet the end of the world.  Life goes on and markets have to thrive.

The Philippine market had a decent quarter – around a 15% gain.  However, the last 2 months – from end-July to end-September – our broad market hardly moved although we had a lot of opportunities in second-liners and small cap stocks.  I do not see that as negative because looking from the perspective of capital preservation, most large cap stocks consolidated their gains at the higher end of the bull run from March to the end of August when the index saw a intraday high of 2906.  Of course, in the last 2 months, our market has underperformed practically all global markets.

Nevertheless, because fundamentals remain intact in the Philippines notwithstanding natural and political calamities, I hear that our market may be the object of regional rotation buying by foreign fund managers.  At least, that is the recommendation that I’m hearing from a major regional investment bank.  It makes a lot of sense when you think of it.  In the last 9 months, our market had seen the exodus of foreign funds as many sold into the markets strength to cut their previous year’s losses.  This time around  it becomes a new ball game, just like marking your positions to market – it makes you look forward.

Based on such  an outlook, I think that the large cap stocks are about to have their day again – as the saying goes, every dog has its day.  Judging from how TEL has been behaving, I think that dog is about to turn fox.  I am also quite constructive on AC and GLO simply that these are stocks that foreign funds buy when they want Philippine exposure.  Let’s not forget the BPI and MBT; my personal thinking is that MBT will break out at 40.  You can stick around to find out.

I have recently tried to follow SMPH and SM because these stocks are so resilient despite challenging valuations.  Yes they look expensive at first glance but they have so much critical mass in the domestic economy.  Now, they even have a China play.  Incidentally, MBT has the advantage among Philippine banks to have a full banking subsidiary in China.

In the next few days, global investors will be extremely cautious because 3Q earnings will soon be disclosed and no one would like to be hit by poor earnings results.  In our market, I think that having lagged other indices over the last 2 months, downside remains limited.  It takes a brave person to buy when prices are declining.  The way to mitigate that is to put sell stops below so that you can come back and fight another day.  My view remains that going into 2010, many of the listed companies here will benefit from the enthusiasm of the elections.  It offers a promise of new hope.  What are market expectations after all but a hope that the future will get better.

Have a great day.

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October 1, 2009 - Posted by | Uncategorized

6 Comments »

  1. Sir Gus,

    I’d like to ask a few things.

    How you go about doing your “homework” before you buy a
    stock? (I always do my homework to make sure that indeed it is not an empty shell that I am buying. -from What’s in a trader’s DNA? ) I guess you mean looking at the company’s fundamentals.

    How should one go about it?

    Should one look at the amount of debt and cash on hand, current ratio, growth in earnings and sales, cash flow and other stuff like that?

    What’s your take on book value, is it useful in stock selection?

    Thanks.

    Comment by jovy | October 1, 2009 | Reply

  2. Jovy,
    Looking at a company’s fundamentals is the starting point. Just to give you an example, before I traded ISM, I went to their website and pored through their disclosures. In spite of it being a small cap stock, when I found out that it was generating a lot of cash, it made me confident that I could trade the stock. Then I follow the price action in the market. I follow price to book ratios and what is important is how it behaves historically. I also follow historical PERs. Then of course, I do some bit of forecasting on my own because we just have to look forward.
    You don’t have to be an analyst, just make sure that the factors that count – PER, PBR, PCF and of course debt levels are within prudential norms.
    Gus

    Comment by Gus Cosio | October 1, 2009 | Reply

  3. Hi Sir Gus! I just found out accidentally your website and I found it very useful.

    I am a newbie about stock and I am still hesitant to buy. Could you let me know what stock should I buy to play it safe in long term perspective?

    Comment by cherie sanges | October 1, 2009 | Reply

    • Hi Cherie,
      If you look at the topic “when the rain comes” in my site, you will see a list of stocks that to my mind have good long term fundamentals for ne reason or another. I would add Manila Water (MWC), Aboitiz Power (AP), BPI, GMA7 (or GMAP), Splash (SPH) to name a few. When you say long term in managing portfolios, what you actually mean is a long term commitment to your portfolio which may change from time to time. It may also increase or decrease in size from time to time. People make the mistake of buying stocks and putting them in their bottom drawer (ignoring them for a long time). That is a sure formula for losing money even if you buy the bluest of blue chips. there is no substitute for evaluating your positions regularly particularly when major events occur. I hope you are able to learn a few things as you follow my site. God bless you.
      Gus

      Comment by Gus Cosio | October 2, 2009 | Reply

  4. Thanks Sir Gus! God bless you too. I will keep on reading your email. Cheers!

    Comment by cherie sanges | October 2, 2009 | Reply

  5. I was actually expecting the market to do a lot worse than it just did. I’m glad it’s not falling apart!

    Comment by Nicole | October 3, 2009 | Reply


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