Gus Cosio says so

Ideas on the Philippine Stock Market

Could we be undervalued?

10:05 am  Wednesday 7 October 2009  Philippine Stock Exchange Index   2930.80

In these first few days of October, our market has gone to an index low of 2771 to a high of 2884, which was yesterday’s close.  The swings were either strongly affected by Wall Street or regional markets.  Left to domestic factors alone, we should have tanked a lot more given the natural disasters the country has been having.  Economists have been saying that the recent and even on-going typhoon damage will cut anywhere from 0.1% to 0.4% in GDP for the next quarter.

In the global markets, the idea that market players were worried about was the “October jinx,” which is the historical experience that market crashes in the past happened in the month of October.  What it was suggesting was that investors ought to be cautious during this historically unpredictable month.  This leads me to believe that investors in the major markets are indeed being very cautious.  Earlier today, I had read an article from a U.S. fund manager who still thinks that the Dow could drop to 6500.  It closed 9731 overnight.  Of course there are the bullish investors out there who continue to add to their equity portfolio.  I am not one to think that these are people who are recklessly buying giving no thought to the possibility that stock prices could crash in the coming weeks for reasons that would be totally unexpected.

Locally, we’re seeing our currency strengthening against the U.S. dollar trading at 46.60 in spite of the ravages of nature that might even cause the government and private business to draw on their reserve funds to reconstruct all this damage.  What is really going on?  Is this insanity that the markets are  totally ignoring factors that should be dampening asset prices?  For sure, property prices in many areas of Metro Manila have tanked terribly because of flood damage and the neighborhoods’ susceptibility to flooding.  The wealth effect is trending toward the negative which implies that asset prices should be falling.

Can we expect prices of other asset classes to rise, then?  I think on a sector by sector, there will be positive and negative developments.  For banks, there could be problems on collateral values on existing mortgages.  There could also be a resurgence of loan demand for new developments to bring about net gains.  For consumer stocks, people will be re-stocking their pantries, buying new linen, replacing damaged furniture and appliances.  For telcos, there could be greater usage of wireless protocols in both voice and internet applications which have higher value added.  On the negative side, there could be a lot of damage to the existing cables in flooded areas.  The expectation train goes on.

I think the bottom line is earnings.  We cannot escape the fundamentals.  What the market is telling us today is that we have undervalued stock like TEL, GLO and MBT over the past few weeks.  I think we’ll discover that even large stocks like AC, SM, SMPH, and even MER will be rated higher despite the negative economic undertone prevailing.  We could be in a situation that everything has remained undervalued with respect to the earnings that these companies generate on a sustained basis.

I think that we can conclude that there is good reason to keep involved in the market.  I would be careful chasing prices.  I would keep to stocks that I am very comfortable with even if they are the small caps like ISM, WEB, SPH or EEI.  If  investors want to punt stocks, be sure that these issues have good fundamentals because at the end of the day, whatever the economy does, if a company delivers a good bottom line, it is a good stock to be in.

P.S.  A little bird told me that the ongoing talks in LC are progressing.

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

14 Comments »

  1. good morning sir gus, I am planning to add some oil and mining stocks. I avoided them since I started last march coz I deemed them too speculative and also I do not quite understand these stocks ( I don’t get it when they are losing money and yet rise 2x, 3x their price and even more)

    Could you suggest some that I could check out. How do I pick stocks from this sector and what things do I need to look out for? I am generally a long-term holder, though I take profits whenever stocks get ahead of themselves. Are these stocks for long term or do I need to be vigilant with their price? thanks a lot.

    Comment by jovy | October 7, 2009 | Reply

  2. Jovy,
    right now, I’m invested in LC because based on the studies that I have seen, LC has the biggest proven mineral resources among local mines. PX is the most profitable up to this point. MA has large mineral resources but not as large as LC. AT is already producing so it is also good. In coal, SCC has been profitable over the last 3 years and has been paying record dividends; problem is that they have acquired Calaca Generating plant which will draw on their existing cash and more. What you could do is try to do some research on these stocks either through the stock exchange. You can even call their investor relations officer or send them an email.

    Comment by Gus Cosio | October 7, 2009 | Reply

  3. sir Gus, I saw you yesterday at the FMAP meeting and was wanting to approach you and ask what you think about EDC. I wasn’t able to get the chance because I was also attending the JGSummit roadshow in Ortigas and had to leave early.
    I bought EDC yesterday at 4.75. I have been watching AP and EDC for a few months now since the Renewable Energy Act has been approved. Do you think EDC will go back to its 2008 high of 6.80 before the year ends? And will the upcoming bond issuance of EDC affect its price in the coming days? thanks!

    Comment by vienne | October 8, 2009 | Reply

  4. Hi Vienne,
    I would have been very happy to meet you. Perhaps, next time.
    Anyway, I hope you own AP. It may be a boring stock because it is not so volatile but if you notice it has just been steady but with very strong upward bias because the top-line will grow exponentially in 2010.
    EDC may not be as impressive as AP in terms of growth but I think that its existing capacity has room for further exploitation. I think 6.80 is achievable but year end as a target my be too challenging. EDC is poised to break out if it goes past 5.00, but the target is between 6.00 to 6.50 I think.

    Comment by Gus Cosio | October 8, 2009 | Reply

  5. Dear Sir,
    Peace be with you.
    I would like to ask for your opinion. I know of someone who has P5M and is wondering what and where could be a safe and good yield investment that they can put their money into. Also if there is a possible long term investment that is feasible.
    Thank you and God bless
    Leo

    Comment by leo | October 8, 2009 | Reply

    • Hi Leo,
      Judging from your question, I assume that you are not a regular stock investor nor follower of the capital markets. It would really depend on what your time horizon is when you say long term. In an investment outlook, “long-term” actually implies that the funds will be committed to non-cash assets over a period of around 3 to 5 years. This does not imply, however, that your investments should be locked up for the entire period. You should allocate your portfolio over a range of asset classes, i.e. cash products, fixed income, equities, even real estate (real estate of course provides no liquidity). Unless you have some time to spare and perform your own asset allocation, I would strongly suggest allocating the Php 5 million in mutual funds and time deposits. I am of the opinion that over the next 18 months, the best investment exposure will be listed equities (i.e. the stock market). So speak to a mutual fund adviser such as First Metro Asset Management Inc. (http://fami.com.ph) and see how you can spread it out over Equity funds, balanced funds, fixed income funds or even foreign currency funds.
      I hope that answers your question. God bless you, too.
      Gus

      Comment by Gus Cosio | October 8, 2009 | Reply

      • Dear Sir,
        Thank you very much for the time. I will try to confer with the owner this that you had advised so that their family can weight things and make a good decision at this. Again, God bless
        Leo

        Comment by leo | October 9, 2009

  6. Good day Sir Gus! I’m quite interested with what the little told you. 🙂 What do you think is the target price for LC? It did perform well today.

    Comment by chinchin | October 8, 2009 | Reply

  7. Chinchin,
    Scuttlebutt is that the bid for a block (with board seats, I’m not sure how many) was 0.35 per share. The seller thinks that 0.35 is too cheap and is asking for 0.50. With that in mind, I am still accumulating at this level witha view that a deal can still be struck. I must admit that it is a dangerous game because if things fall through, it will be difficult to get out even at break even. My fall back is that LC’s mineral resources are quite rich and could attract other buyers. If that was not the case, I would not have even touched the stock.

    Comment by Gus Cosio | October 8, 2009 | Reply

  8. Hi Sir Gus.. Hi Guys..

    What is an over allotment option? I understan what price stabilization measures means but I do not know what an over allotment option is.

    http://www.pse.com.ph/html/disclosure/pdf/2009/pdf/dc2009-6546_MPI.pdf

    Thanks!

    Comment by Oliver Mia | October 8, 2009 | Reply

    • Oliver,
      Over allotment option is the right of the issuer to increase the size of an issuance beyond the original amount sought to be offered. The over allotment is limited to what has been disclosed.

      Comment by Gus Cosio | October 9, 2009 | Reply

  9. Sir Gus,

    As you replied to my question in your previous entry, I think PX is still a good buy. Though I bought some of it at 10.50. Right now, it’s price at 9.10, so I took to the opportunity to buy more of it. Do you think, it’s a good time to buy? Any enlightenment on this? Thanks again.

    http://thegetwealthy.com

    Comment by Bullish Trader | October 9, 2009 | Reply

    • At this point, I do not detect any particular party accumulating PX as I saw previously. PX continues to be a good resource play which is still a global theme. I think with metal prices remaining high, PX will move up based on its own fundamentals.

      Comment by Gus Cosio | October 14, 2009 | Reply

  10. thanks for sharing that kind of information sir gus. can’t wait to read your next blog. 🙂

    Comment by chichin | October 9, 2009 | Reply


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