Gus Cosio says so

Ideas on the Philippine Stock Market

Pork Chops and Hamburgers

8:45  Thursday   14 January 2010   Philippine Stock Exchange Index  3096.70 (-0.29% – yesterday’s close)

When then entire neighborhood is doing badly, it doesn’t look so bad when our market goes down.  The PSEi was down a tad below 9 points or 0.29% but that was nothing compared to the 2.59% drop in the Hang Seng and 3.09% drop in the Shanghai Composite.  Actually, most of Asia’s markets had been sluggish this week, so it was not unusual that a lack of enthusiasm hit our market yesterday.  Overnight, however, Wall Street was up 53.51 points or 0.5% which will likely perk up the mood in our part of the world.

In my view, local stocks were just consolidating early in the day as traders were taking profits on TEL, MER, FPH and AP.  But you had a fresh wave of buying on ALI, AC, FGEN and BPI.  I think investors are carefully positioning themselves in those stocks that still have a lot of value to be realized.  If I were to venture an educated guess, I think TEL would be a great performer this month because value wise, this stock is trading around 12X 2010 earnings which is a shade below the market PE of 13X 2010.  On top of that, TEL would have a dividend yield of 8% this year.  That’s better than putting your money in any bank deposit or even treasury bonds.

Anyway, I went to a global market briefing of Deutsche Bank yesterday.  While most of their views centered on the fixed income market, their macro economic views were of significant value to me not because I agreed with them but because I appreciate points of view that are different from mine.

They reckon a soft recovery for the local economy as improvement of global trade will restore some activity to Philippine exporters.  We are starting to feel that already with exports registering growth in November 2009 after declining for 13 months, I think.  Of course, no economists doubt the impact of OFW remittances anymore after positive surprises were consistently seen in this sector even at the worst times in 2009.  They even think that the PHP will become stronger in 2010.

Another interesting view is their outlook on commodities.  They think energy commodities will be steady to softer in the backdrop of oil prices going softer past the winter months.  They also think that base metal prices, while not easing significantly in prices, will not be as strong in 2010 simply because China’s materials stockpile is presently in comfortable levels.  The speaker mentioned that copper demand in China could take up all of Chile’s output should they come back strongly in the market.  That should underpin any drastic move in copper prices this year.    What appears to be a cause of concern are agricultural commodities which have spiked considerably already.  Sugar prices has gone up the most among these and corn prices have been equally firm.  The impact of these on other agricultural commodity prices cannot be under estimated.  Corn, for instance, is a major component in animal feeds.  It looks to me that meat prices will likely to remains high.

There goes my pork chop and hamburger meals.  I will likely lose some weight this year as I reduce consumption of meats and take in more vegetables which are lower in cost.  Unfortunately, this does not bode well for domestic inflation which is heavily influenced by food prices.  Having said that, we may be seeing a slight nudge in short-term interest rates, but I do not think that any rate increase domestically would take much wind off the sail of our stock market.  What we should be watchful of would be interest rates in the U.S. because if they move up drastically, global stock markets could grind to a halt.

Meanwhile, I think trading opportunities are still available for the rest of January.  I’m moving up my trading range on MPI to 2.75 -3.25 as investors start to realize the values in its utilities portfolio.  I also think AGI will gather support at these levels, i.e. 3.50 or so.  I hear more and more people have been flocking to their gaming facilities next to Naia 3, many of them foreign tourists.  I hear the shows and the food are pretty good value; no wonder business is booming.  I am also seeing renewed activity in LC/LCB as speculation is again abounding about an M&A.  After all, Lepanto Mining holds the largest mineral reserves right now.

January 14, 2010 - Posted by | Financial markets in Asia


  1. Sir Gus,
    Regarding PNB.
    Isn’t it that in M&A, the buying company’s stock price goes down? And specially in Philippine banking setting, the seemingly burdensome system and cultural integration/unification process takes a toll on the surviving entity’s share price? Thank you sir.

    Comment by John | January 14, 2010 | Reply

  2. John,
    Seemingly, PNB is buying Allied, but remember Allied is not listed so PNB likely is acquiring Allied at book value. It is a very friendly M&A because it has the same controlling shareholders. After the merger, PNB will have a stronger balance sheet because Allied has very little non-performing loans. This merger is not the same a s a wall street merger where the acquirer will become diluted by the redistribution of the combined shareholding of both. In this particular case, shares of PNB which are presently very cheap will be used to pay for higher valued assets.
    As to integration/unification, they have been operating as an integrated whole for almost a year. Every body on both sides is just waiting for the official merger which is only being delayed because of some regulations in the U.S. where PNB has full branches and Allied has a subsidiary.

    Comment by Gus Cosio | January 14, 2010 | Reply

    • Thank you sir for your reply.
      I have some more questions though if I can indulge myself.

      Sir, PNB shares will be used to buy-out Allied?
      They will issue new shares sir?
      And if their shares are very cheap, they will have to issue more shares?

      Comment by John | January 15, 2010 | Reply

      • Yes, but they will not be issuing them to the public at large but to Allied Bank shareholders. No new shares will come into the market per se. It will simply be an apples for apples swap of Allied Bank shares for PNB shares. It is not as if PNB issued new shares for nothing. They issued new shares to acquire Allied Bank’s assets resulting to what I estimate to be a net asset value of 75 pesos per share. PNB is trading only at 24. Now do you blame me for wanting to hold on to my PNB shares which I bought when it was lower than today’s price. I have all the time to wait.

        Comment by Gus Cosio | January 15, 2010

      • I see. Many, many thanks sir for taking your time.
        I look forward to more learnings and insights from you.
        I do visit this site everytime I have time to open the net.
        More power to you sir. God bless.

        Comment by John | January 15, 2010

  3. Hi Sir Gus,

    I am currently looking at two stocks that you previously mentioned in your others posts – URC and PIP – being consumer stocks. More specifically, PIP seems to be trading flat for the past several weeks/months a breakout for this stock feasible, maybe in the next 1-3 months? or do you think the stock will just follow the PSEi movement, for that matter?

    i’ll appreciate your thoughts on this.
    thanks again.

    Comment by J | January 15, 2010 | Reply

    • Personally, I’m trying to accumulate the stock with a view that closer to the 2nd half of 2010, it will be closer to 3.00. In my view, PIP is moving on its own. It has a beta of 0.86 to the PSEi which means it is less volatile than the PSEi. My conviction on the stock is based on what I see as a good year for them in FY 2010 which ends on Sep 30, 2010 for them.

      Comment by Gus Cosio | January 15, 2010 | Reply

      • thanks a lot, sir gus.

        Comment by J | January 15, 2010

  4. Hello, does anybody know where we can get historical stock prices ranging from years 2000-2008?

    Thanks 🙂

    Comment by wren | January 15, 2010 | Reply

  5. I’m doing some research on PNB since it caught my attention thanks to Sir Gus, and it looks good, I only regret not going in when it was still very low hehe…

    Comment by wren | January 15, 2010 | Reply

    • With my view on where the stock will be at the end of 2010, nobody is late if they come in and buy PNB today.

      Comment by Gus Cosio | January 15, 2010 | Reply

  6. Hi Mr. Cosio,
    What do you think of DMC? and what is its fair value? DO we see a two bagger by yearend? Thanks

    Comment by jay | January 17, 2010 | Reply

    • Hi Lian,
      I like DMC, and I think that it is cheap. Just for comparison, we estimate Maynilad to be priced at 12X earnings in MPI’s valuation. In contrast, Maynilad, in our estimate is only priced 5X earnings in DMC. I also hear that the housing development profits have not yet been fully consolidated in DMC, but they’ll have to do it eventually. An analyst also told me last Wednesday that the order book for construction is full.
      I don’t know if it will be a 2 bagger by year-end because there will be a lot of cash demand due to the acquisistion of Calaca by Semirara. Even if it does not double, I think that it will go up at least 30% in the next 3 to 6 months. That’s good enough for me. When it get there, I’ll evaluate the stock again.

      Comment by Gus Cosio | January 18, 2010 | Reply

  7. Hello sir, i am currently doing some reading about trading stocks as i have very little knowledge about it. i am just wondering, what does it mean if for a particular stock has high foreign inflow but experienced a price drop? i was looking at VLL and saw that it is being sold down since yesterday, mainly because of the C5 project thing, but as it turns out, net foreign flow was at P418m for yesterday alone. what signal does this send?

    Comment by atticus | January 19, 2010 | Reply

    • Hi Atticus,
      I think what is happening to VLL is that it is just changing hands. Weak holders, i.e. those who are merely punting on the stock. A stock without strong buyers will not be able to turnover P418 million in one day without crashing if there are no buyers. It looks like there was enough interest in the stock at 2.06.

      Comment by Gus Cosio | January 19, 2010 | Reply

      • thank you sir. your blog here is very useful for new market participants like me. hope to read more of your insights soon.

        Comment by atticus | January 19, 2010

  8. Hello Sir Gus,
    Thank you very much for your blogs. I invested in your recos- PNB (also my favorite), PIP and DMC but let go of PIP seemingly on a downtrend lately. I hope to read more of your blogs. I hope you publish a new article soon…no pressures! =) Regards, Charmagne

    Comment by charmagne | January 20, 2010 | Reply

    • Charmagne,
      You may want to reconsider getting back into PIP perhaps when it goes down further. Although at this point, I think the stock is already in firmer hands.

      Comment by Gus Cosio | January 20, 2010 | Reply

  9. Hi Gus,

    Just curious why MEG drop suddenly to 1.30? I got panicked. Will this be go beyond 1.20 in the coming weeks or end of the month? I appreciate your input on this. What can you say?


    Comment by Kier | January 20, 2010 | Reply

  10. Hi Kier,
    MEG is not really weaker than the general market. It is just following the day to day trend. It looks to me that some traders are selling MEG and buying MEGW1, but not in a big way.If you look at this trade, you are getting more leverage because you are getting more than 2 MEGW1 (it closed at 0.59)for every MEG. I observed that MEGW1 has been more resilient on the downside than MEG itself. Having said that, even if MEG has been going down, there has been good value turnover. I don’t think investors are dumping the stock. I think it is just portfolio adjustments.

    Comment by Gus Cosio | January 20, 2010 | Reply

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