Gus Cosio says so

Ideas on the Philippine Stock Market

Maximizing Virtue

5:45pm   26 November 2009   Philippine Stock Exchange Index   3089.82 (+.083%)

Often times, patience is what we really need to be greatly rewarded in this market.  I’ve missed quite a bit of profit maximizing opportunities because of impatience.  In this rally, many times I lost the opportunity because I sold too soon.

A few of my examples are:

Semirara (SCC) – I bought this stock a few months ago at 38.50.  The stock price stood still for a number of weeks and looked stuck at 41.  The company was, then, able to acquire the Calaca plant and I thought that the capital outlay needed for the acquisition might put a drag on the stock.  Anyway, I sold the stock thinking of buying it back at a lower price.  Unfortunately, I did not spot it again in my radar screen until it was 45 and I did not want to chase it. It’s now 50.50.  I’m now banging my head on the wall because I should have been more patient and just sat on the position.

Aboitiz Power (AP)  –  I was able to get in early in this stock.  I averaged about 3.60 having accumulated my position between February and March.  Unfortunately, when the stock had gone up to 4.70, I sold and was unable to get it back. Now it is at 8.00 and I’m still waiting to buy it back.

ISM – My first entry in the stock was 0.027, then 0.038.  Again to my regret, I sold at 0.041, re-posted at 0.036 but was unable to get anything.  When the stock came back, it quickly zoomed to 0.06 without looking back.  I was in early, but I missed the bigger move.

There were a few others, FLI, ALI, EDC, FPH, BPC, PIP, SPH.  Had I been more patient, I would have gone the whole nine yards on these stocks.  In retrospect, it was patience pure and simple .  I had spotted the trend but was too impatient to have held on and seen it through.

The point I’m driving at is that there are now a few stocks which I think are 2-baggers.  These are PNB, EEI and LC/LCB.

I think that with all the earnings disclosures on both PNB and Allied, the valuations of the merged bank should even be higher.  After all, the merger is a certainty incumbent only upon the sale of shares of an Allied Bank affiliate in the U.S.  I have no doubt that the sale will happen; it’s just a matter of time.  If my calculations are correct, PNB should be worth at least 50 even without the merger.  I think that patience is the key in arriving at that number and I think I could wait another 6 months for that to happen.  That’s definitely a 2 bagger.

With EEI, even before I learned about their Papua New Guinea project, my fund manAger colleagues and I thought that at current levels, this stock is trading around 4.7X trailing 2009 earnings and 4.1X 2010 earnings.  They have an order book that goes way beyond 2010 that includes contracts in Guam and the Middle East not counting the infrastructure and power projects in the Philippines.  They also have regular dividend pay outs which at present the stock price is equivalent to a 4% yield.  Again, I think patience will be the virtue that I need to grow in if I want to benefit from a 2-bagger on this stock.

Finally, there is LC/ LCB.  According to research, LC has the richest mineral resources among all mining stocks listed in the PSE. LC was originally believed to have been an M&A target of MVP but to this date nothing has progressed.  My info source has it that there is still a chance that a deal would be struck.  Anyway, a new player might be stepping in, it seems.  According to my source, the people behind the deal that put together NI and GEO have scouted for interested parties from Shanghai to queue behind MVP in case he walks away from his talks with LC/LCB.  This is information that will likely attract more interest to LC/LCB given that their mines have proven reserves that are already producing.  Patience, I believe will be likewise required although I noticed a volume spike today.  Hopefully, I don’t have to wait that long before hitting pay dirt.

As to today’s action in the market, while we saw a 25 point rise in the index, it somehow did not feel that enthusiastic to me.  In the gainers/losers count, it appears that market breadth were in favor of losers.  Nevertheless, I don’t think there is cause to worry.  There looks to be careful buying of blue chips; so institutions are gradually dressing their portfolios with TEL, AC, MWC,ALI, MBT and MER.  If we look at the fundamentals, nothing much has changed in spite of downward revision of GDP.  Even market sentiment remains the same.  If the trend we’re following is still bullish, I believe patience remains to be the virtue that will bring us closer to our goals.

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November 26, 2009 - Posted by | Financial markets in Asia

14 Comments »

  1. I’m still pinning my stakes with EEI. By any chance have you studied MEG, Sir Gus? Seems like the stock has taken a beating after it peaked in early October.

    Thanks!

    Comment by J | November 26, 2009 | Reply

    • MEG is being sold because part of the rights issue and the warrants that go with the rights will be listed on December 14. Followers of this stock is looking at dilution that’s why they are selling. I still think that it’s a good trading stock. Just don’t get attached to it. Buy it when it’s cheap and sell it when it gets expensive. This is a stock that will never run away for the reason that people punt it all the time. Have the discipline of buying it when it is weak and follow the disclosures.

      Comment by Gus Cosio | November 27, 2009 | Reply

      • thanks, Sir Gus.

        Comment by J | November 27, 2009

  2. For me, an entry price is not as important as the exit price.

    Comment by Drew | November 26, 2009 | Reply

    • Drew,
      that is a nugget of wisdom. Thank you.

      Comment by Gus Cosio | November 27, 2009 | Reply

  3. yeah, what do you think of Meg sir gus? and agi?
    I wonder how the ‘Dubai Debt’ is gonna affect our market :-s

    Comment by wren | November 26, 2009 | Reply

    • The Dubai debt shit hit the fan more than a year ago. I think it is already priced in our market. We did not suffer any decline in OFW postings in the middle east because of Dubai. We actually saw an increase of deployment primarily because of Saudi Arabia who is booming because of high oil prices.

      Comment by Gus Cosio | November 27, 2009 | Reply

      • I was really scared of that, AGI seems to be taking a beating right now too.. 😦 sigh..

        Comment by wren | November 27, 2009

  4. I think AGI is taking a beating because MEG is taking a beating. MEG is down because people who availed of the rights at 1.00 are selling the stock in proportion to the stocks they own from the rights. It’s like profit taking.
    I picked up some AGI 2 trading days ago at 4.35 Unfortunately, I bought too soon. Nevertheless, I can still live with the stock so I don’t mind holding on. If it braks 4.00, I’ll probably cut loss and reposition later.

    Comment by Gus Cosio | November 28, 2009 | Reply

    • Sir,

      I can understand why AGI’s price would go down knee jerk to MEG’s price going down, however, isn’t AGI supposed to be one of the beneficiaries of the stock rights? I think on ex date of MEG SRO, the market price was at 1.0 so a lot of people did not avail of the SRO and since AGI said that it would exercise the unused SRO, then I guess AGI would be able to buy a lot of MEG at 1.0 right? Or better still, it could sell the warrants themselves to get something for nothing (other than opportunity cost).

      What do you think?

      By the way I talked to a well respect analyst who I don’t want to mention here, and he told me months ago that while AGI is considered the parent of MEG (I guess bec it is a holding company), Meg actually owns a lot of shares of AGI. Any comment?

      Thanks!

      Comment by Warren | November 28, 2009 | Reply

  5. You’re absolutely right that AGI should be selling all their shares that can be covered by the warrants because it would be free cash for 5 years without losing ultimate control of the shares.
    On cross-holdings, I don’t know what the degree of cross-holding is between AGI and MEG, but these two share will always be correlated.

    Comment by Gus Cosio | November 29, 2009 | Reply

  6. Hi Gus. I was wondering how you measure the fundamentals of mining companies. What do you like about LC/LCB?

    Also, I believe that CMT and HLCM are better in fundamentals than that of EEI, but then again, I am new to this and I am not sure what I should be measuring.

    Comment by christine | December 2, 2009 | Reply

    • Hi Christine,
      CMT and HLCM have very good fundamentals although CMT is cheaper at 5.7X trailing PE vs HLCM at 11.2X trailing. Also cement companies have better transparency because they are manufacturing operations so you can see production and output schedules. EEI is a contracting company which mostly supplies engineering and labor services overseas although locally, they ave fabricating facilities, I think in Batangas. I mentioned to another reader that EEI had not been a well followed stock in the past. I’m just making a bet that the market will eventually notice it because it is such a good company. Don’t be intimidated that you are new to the investing game. You probably have better insights compared to many. My advise is to diversify your holdings and do not bet everything on not so liquid stocks. Learn to trade the blue chips also.

      Comment by Gus Cosio | December 3, 2009 | Reply

    • Christine,
      According to a mining analyst friend of mine LC/LCB has the largest mineral reserves among all mining companies. Remember, however, that these are all estimates though they term it as proven reserves. LC/LCB has been operating in the country since the 1950’s. I think that is why they were able to accumulate so much mining claims. It is because of all these claims that they might be attractive to the Chinese investors who are actively looking for mineral supplies.

      Comment by Gus Cosio | December 3, 2009 | Reply


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