Gus Cosio says so

Ideas on the Philippine Stock Market

Asset rich in more ways

1:40pm  Thursday  12 November 2009  Philippine Stock Exchange Index  3073.93  (+0.88%)

Looking at what’s going on in markets worldwide, it is not surprising that we’re on a roll.  My view of U.S. stocks, for instance, is not as negative as what a lot of analysts think.  The view from many New York technicians is that there should be a much awaited correction.  This outlook arises from nothing more than an argument that because the S&P 500 is up around 60% from its March lows, then it should come down a bit.  Unfortunately, I do not share that view.  While I believe that no market just goes only one way, there should be fundamental reasons why rallies should reverse directions.  The earnings of 3Q09 in the U.S. and elsewhere had many positive surprises on account of the companies having derived a large proportion of their income from outside the U.S.  The consensus expectation for 4Q09 earnings is even better and would likely reflect positive earnings growth from 4Q08.  I think that investors should really be taking a global perspective.

From a strategic allocation perspective, it does not really make much sense to be holding a lot of cash or fixed income in the Philippines or the U.S. where interest rates are at historic lows.  There is so much compulsion for investors to really scour the horizon for good stocks even just to punt at these stocks.  All the more when it comes to stable and asset rich stocks like AC, ALI, TEL, and yes, even MER in spite of the extreme volatility seen in this stock.  The local blue chips will surely see better days in 2010 particularly because it is an election year.  Analysts are always overly cautious of election years for stock because of what they perceive a wave of uncertainty.  For sure, there will be volatility going forward; but another perspective of volatility is that it oftentimes brings the price of your favorite stocks back oto affordable levels.

Should we be getting nervous that we’ve had 3 days of price increases.  Why should we?  Are the big movers going to tank, meaning MER, PX or even TEL.  I don’t know about PX because mining stocks are very difficult to analyze, but MER – I think that this stock will eventually be rated higher by analysts because it’s earning will grow consistently and if the price comes lower, the M&A buyers will be on the prowl again.  TEL, and even GLO for that matter, will be seeing higher usage of both voice and data service in 2010 as consumer spending rises.  For stocks like AC, ALI, SM, SMPH, URC and RLC, these stocks will likely see highe values for their assets as domestic economic recovery takes hold in the opening months of 2010.  We will likely have the higher asset allocation to Asia and Emerging markets by the traditional fund managers as this remains to be a global theme.  I am also of the belief that because many investors are still allergic to leveraged plays; rather than going for structured products as investments, they will prefer to go to cash markets like the equity market.

The small caps have been phenomenal and may entice some buyers but when it comes to extreme price actions, please be careful not to be sucked in purely on momentum.  Be sure that there are solid fundamentals supporting the move or at least the prospects for the stocks growth is discernable.  For example, I like ISM and traded a few weeks back; but now that it is trading at .0625, I’d be very careful.  Stocks like SPH and AGI surely have solid fundamentals.  If these stocks are showing signs that they are being pushed, I take comfort in the fact that the underlying values in the stocks are real and defensible.  The same is probably true of PIP and Tuna.  There was a recent move in ACR which no one can yet explain.  I’m not one to jump into hasty conclusions but I wouldn’t be as impulsive in risking good money simply because the stock is moving.  I’m going to look deeper though because one should not shrug off opportunities.

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November 12, 2009 - Posted by | Financial markets in Asia

27 Comments »

  1. hi gus. i was introduced to your site just recently. i’ve followed your leads and have a 100% batting average so far. great insights….well thought out. am recommending your site to my other friends. ciao!

    Comment by alabanger | November 12, 2009 | Reply

  2. You are very fortunate, Alabanger. I don’t really wan to take credit for your success because at the end of the day, it is you who make the trading decision. I wish you sound judgement in trading your portfolio. Good luck>

    Comment by Gus Cosio | November 12, 2009 | Reply

    • btw, i regularly visit other sites that offer stock picks mainly on technicals. it is refreshing that your picks are based on some fundamental analysis and insights…more palatable since i am not a techie. more power to you and your site. your humility too is refreshing!

      Comment by alabanger | November 12, 2009 | Reply

      • The reason that I religiously post my blog with a variety of ideas is to help develop market sense among followers of the stock market. It is my personal advocacy that people become comfortable in their trading view of the market because they themselves have developed a market sense.
        Many years back, the head of the New York forex trading desk told me that he’d rather have a trader who was street smart rather than one who was very intelligent but did not have a market sense.
        I’m not very intelligent, but I’d like to be a sensible market player.

        Comment by Gus Cosio | November 12, 2009

  3. Sir Gus, TKC also made a strong move today on relatively strong volume. Do you have any comments on this?

    Comment by Warren | November 12, 2009 | Reply

    • Warren,
      Notice that both I-Remit and TKC spiked from yesterday. I haven’t heard anything particular on new developments. I-Remit spiked up same time last year due to the anniversary of its IPO. We predicted this last Friday in the institutional funds that I advised but the daily turn over was pretty low so it was very difficult to trade. I think it may be too late for I-Remit. With TKC, since it only started today, there might be a chance.

      Comment by Gus Cosio | November 13, 2009 | Reply

      • Ours is a strange market. Thanks!

        Comment by Warren | November 13, 2009

      • Sir Gus, indi po kaya kasama si I sa buying spree ni SSS?

        Comment by drew | November 14, 2009

      • You know Drew, the SSS does does not participate in speculative moves. It has to have a fundamental reason to do so like if they are getting a stake in the company. My sources tell me that Sterling Bank, which is owned by the same family, could be folded into I. It makes good sense to me. It may also be a case where the owners of Sterling are selling a stake f the bank to SSS and promising that the bank will have a listing. The obvious listed vehicle is I. This actually makes I a very sound play even for speculative purposes.

        Comment by Gus Cosio | November 14, 2009

      • Guys,

        The rumor about the SSS investing into I is the more rampant one. Although I think Sir Gus’s info is probably more reliable precisely because its usually the twisted version of the news that really get circulated.

        Is Sterling Bank the subsidiary of I or is it the other way around,or are they simply affiliated companies? Thanks.

        Comment by Warren | November 15, 2009

      • Wait a minute, hasn’t Sterling Bank been merged with Union Bank already?

        Comment by Warren | November 15, 2009

      • Or was that just Ibank but not Sterling Bank?

        Comment by Warren | November 15, 2009

      • The owners of I-Bank sold out to Union Bank three years ago. I-Remit was a separate business that some of the owners chose to keep. These same owners used some of their profits to buy Far East Savings Bank and renamed it Sterling Bank of Asia.

        Comment by Gus Cosio | November 15, 2009

      • Sterling Bank and I-remit are ownwed by the same people who own TKC Steel. That makes them affiliated companies.

        Comment by Gus Cosio | November 15, 2009

      • Warren, I got new info on I. I heard that Sterling Bank might be folded into I after all they have the same owners.

        Comment by Gus Cosio | November 14, 2009

      • So I guess there are two versions of rumors so far. Its either sterling bank or SSS, or both. Actually both are viable. Thanks again.

        Comment by Warren | November 15, 2009

  4. Sir Gus, I read about your post some weeks ago about FLI and how it was affected by Ondoy and Pepeng, it seemed to be rebounding now from .89 area, are you now bullish on this stock? I look at the stock market in a technical way, but im thinking FLI has some solid fundamentals as well?

    Comment by paul | November 12, 2009 | Reply

    • Paul,
      FLI is a very technical stock. It is quite possible that weak hands have already been flushed out. I reckon that we are still in a trading range. I think the effective working range is still .90 to 1.07.

      Comment by Gus Cosio | November 13, 2009 | Reply

  5. Good afternoon sir Gus,
    I would like to ask from you if its the right time for me to sell my PAX. I’m planning to unload some of it at 3.50. What do you suggest for me. I need your advise as I am new to this business.

    Comment by sunshine | November 13, 2009 | Reply

    • Sunshine,
      The advise I would like to give you is that when you buy a stock, buy it out of conviction and not out of impulse. In other words when you start picking stocks, do not look at its price first but examine what the company is all about. Then look that it trades in volumes higher than the amount that you invest. You should also have a time horizon.
      When you come to a stock that you like, you should not be nervous should it go down because if it does, you have a chance to average down in your cost. Alternatively, when a stock goes up, ask yourself if you’re willing to buy it again at this higher. If you are then keep it. Of course you have to also follow the circumstances surrounding the market.
      As to PAX, I do not know what is going on in the stock. If you are not comfortable holding the stock, better to sell it and put the money in a stock that you caan be comfortable with. If you want suggestions on small and medium cap stocks, I’ll recommend EEI and PNB today. You can find information on the internet on these two stocks. I think for a new comer like you, you may be able to cut your teeth well on these two.

      Comment by Gus Cosio | November 14, 2009 | Reply

  6. sir Gus, what do you think of I-remit? why is it moving for 2 days with heavy volume? is i-remit a goodbuy? thanks!

    Comment by jay | November 13, 2009 | Reply

    • Jay, Have a look at what I wrote to Drew. There is a very good chance that Sterling bank will be folded into I. This is another M&A play.

      Comment by Gus Cosio | November 14, 2009 | Reply

  7. Sir Gus,

    In your previous blog post you mentioned how SPH fits the investment criteria of a venture fund. I understand you may be constrained by confidentiality agreements, but would it be possible to share with your readers, at least a general sense, of what these criteria are?

    Thanks very much!

    Melvin

    Comment by Melvin | November 14, 2009 | Reply

    • Melvin,
      The fund manager said he was looking for a company with a good brandname and at least USD 2 million in sales. I think that this would be his starting point before making judgement on the value of the stock. Companies like SPH have the potential to fly because of those who already have loyalty to the brand. It really depends on whether they are able to bring new products that will hit them a home run. In short, if I were a venture cpitalist and this company will be coming up with a new product, the risk reward ratio is pretty good should SPH hit a new home run.

      Comment by Gus Cosio | November 14, 2009 | Reply

  8. Thanks po, Sir Gus. I’ll research how M&A works via the net. From a newbie perspective, I’m thinking if I-remit needs to issue new shares for Sterling or vice-versa. Even with the same owners, if these entities (I and Sterling) are not linked by ownership shares, di pwede mag merge basta basta. This is confusing me. Basa basa muna ako ng internet articles about M&A.

    Have a nice day po. =)

    Comment by drew | November 14, 2009 | Reply

  9. Hello! I have been going around the stock market for only a few months, with a few misses and hits. I was blessed to be introduced to M&A during the Union Bank and I-Bank union (no pun intended).
    I-Bank made an IPO to its depositors for 5K shares per account. I believe that was 16-18 pesos. When the tender offer of 42 was made by UBP it was trading at 20-21, I think. And when the deal was done, it was totally ecstatic.
    Too bad they only limited the shares to 5K to depositors.
    I hope this can happen again with I.

    Comment by The Antagonist | November 17, 2009 | Reply

    • Hello Antagonist,
      There are issuers of stock that have goals of making shareholders happy in the long run because they know that they will always come back to the capital markets. I believe the present principals of I and TKC are among those kind of people. If the business really goes well, they’ll give it back to shareholders. after all, they’re shareholders themselves.

      Comment by Gus Cosio | November 17, 2009 | Reply


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