Gus Cosio says so

Ideas on the Philippine Stock Market

Who’s throwing the party?

7:00pm  1 December 2009   Philippine Stock Exchange Index 3097.92  (+1.74%)

If Dubai was such a big mess, then why did the markets rebound just after 2 days.  Like I said, people already knew that Dubai was a bubble way before this debt re-structuring was revealed. It was like an accident that people were waiting to happen.  The Dubai construction boom was a gambit that if Dubai threw a party, everybody would come.  In fact many did come to the party as Dubai became the Middle East destination for the rich and famous.  People paid US$2,500.00 a night for the general admission hotel and as high as US$25,000 a night for the super deluxe butler appointed suite.  Dubai organized globally broadcasted car races, yacht and power boat regattas, tennis matches and golf tournaments featuring the likes of Kimi Raikenen, Roger Federer and Tiger Woods.  Anyway, the party is over, at least for now.  Dubai has to put logic in all its development in order to sustain the long-term flow of locators to the emirate.

The local market remains pretty solid.  The mining issues are being squirreled away by some investors from Mainland China which is consistent with the view that China is really bent on stockpiling all sorts of commodities.  That explains why PX and CPM continues to be firm.  I should keep an eye on LC/LCB as well; while volume was not so large today, the cummulative volume last week prior to the Dubai plunge is worth taking notice of.

Banking share PNB was probably a victim of the Dubai anxiety as well with people associating OFW remittances from the middle east with PNB.  Yes PNB is a strong traditional remittance bank in the middle east but most of that cash is coming from the Kingdom of Saudi Arabia where business is still booming.  AGI also staged a recovery that is strong and volume driven; for candlestick chart followers, the stock had a bullish engulfing day today which is a very strong signal.

Another stock that got hit with the Dubai danger was EEI.  I think people should be looking more towards the company’s contracts in the Pacific (Papua New Guinea and Guam) and locally.  EEI is a specialist in mechanical engineering rather than civil engineering.  I think that is why they wer able to get the gas pipeline project in Papua New Guinea.  Dubai construction is mostly civil engineering.

For the strong hearted whose blood pressure is not threatened, MER looks to be a trading buy again.  I think it will assault 230 again if there is no bad news from overseas.  There are guys still accumulating MER for some surreptitious reasons which I think we can figure out soon enough.  Of course, when MER rises, it is good for TEL because PLDT owns a lot of the stock at an average cost of 91 – don’t forget what happened in May this year.  On its own, TEL should probably go to 2800 by year’s end purely on rebalancing of global portfolios.  Given its good dividend yield, I suspect many foreign and local institutional funds will take up more TEL in their portfolios.  I expect the same portfolios to be accumulating AC, MBT, SM & SMPH as well.

As we approach year-end, I should warn you to take greater caution on those stocks that are on pure play.  This means that if you buy mining shares, make sure that they actually own a producing mine not merely a paper mine.  If it is an industrial company, make sure that the earnings and cash flows are there so that there is a light at the end of the tunnel.  Don’t go groping in the dark, after all a little digging could yield a lot of information.  The party is still going on in this part of the world, but you must keep you eyes open.

 

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December 1, 2009 - Posted by | Financial markets in Asia

8 Comments »

  1. Hi Gus

    You have mentioned this in your post”I think that is why they wer able to get the gas pipeline project in Papua New Guinea. ”

    is this the $50M or $250M contract expected to be awarded last Nov? If so how come there’s no disclosure yet by EEI?

    thanks a lot

    mike

    Comment by mike | December 2, 2009 | Reply

  2. Mike,
    The information I got about the Papua New Guinea project of EEI comes from a friend of mine who is doing logistics work for the company in Papua New Guinea. The major contractors of the project known as the PNG LNG are big international names: Santos, Exxon-Mobil (operator), Oil Search, Nippon Oil, AGL & MRDC. EEI is just a sub-contractor. I do not know whether it is mandatory that EEI disclose this as order books need not be public knowledge. They can report the results, however, during their regular quarterly reporting to the exchange.

    Comment by Gus Cosio | December 2, 2009 | Reply

  3. Sir Gus, I hope you could also do a write up on cpm if you have the time. I would love to read your opinion on it. Thanks.

    Comment by Ed | December 2, 2009 | Reply

    • Edison,
      I’ll try to find out more about CPM but I need more time.

      Comment by Gus Cosio | December 3, 2009 | Reply

      • ok thanks sir! looking forward to it!

        Comment by Ed | December 3, 2009

    • Hi Ed,
      I checked out CPM but this was a stock that was “listed by introduction” which means that it was listed without any stocks offered to the public. The movement of the stock has been due to the existing shareholders doing block trades for negotiated deals. I’m afraid that at present, I find no transparency yet in these stocks and I’ll err on the side of prudence and avoid it. One thing I know for sure about CPM is that it does not yet have an operating mine.

      Comment by Gus Cosio | December 6, 2009 | Reply

  4. thanks Gus and goodluck on our EEI

    Comment by mike | December 3, 2009 | Reply

    • Mike,
      EEI has never been a strong performer in the market because most of its projects are overseas and brokers have little information about their projects on a normal basis. I’m basing my decision of holding on to EEI because: 1) it is trading 4.1X 2010 earnings and 4.7X 2009 earnings vs its historical PE of 7.4X; 2)it is trading at .88X price to book vs .92X historical P/B; 3) this year’s dividend yield is 4% and I’m betting that they will pay even higher next year based on better earnings in 2009.

      Comment by Gus Cosio | December 3, 2009 | Reply


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