Gus Cosio says so

Ideas on the Philippine Stock Market

The poor cat

9:30 am  Wednesday  27 January 2010   Philippine Stock exchange Index   2955.70  (-0.41%)

Yesterday, this market saw a real dead cat bounce, if I’ve ever seen one.  As a reaction to an overnight recovery, the market opened up 10 points and traded as high as up 29 points; then it was downhill all the way.  I think prudence is getting the better part of investors, and there’s nothing wrong with that.  With the January effect theory going out the window, I would really give my portfolio a good re-think.  I hold only one index stock in my portfolio and the others are what I consider value stocks.  I do not own any speculative stocks, i.e. those stocks whose fundamentals are unknown yet are being fanned by the rumor mill.

Of course the portfolio is down, but not as bad as the index.  One has to be realistic and know how to bite the bullet, so I must admit that I tried to sell this bounce.  I think that I’ll be better off holding some cash.  So my short-term strategy is to sell those stocks where I have marginal gains or losses, with the criterion that these are the least favored in my portfolio.

I know some fund managers who are now looking at some blue chip stock believing that they may be at bargain basement prices.  One is looking at the banks – MBT & BPI – which look relatively cheap where they are, but in my opinion they are only cheap compared to themselves.  The market could get a lot cheaper.  I can’t blame them because fund managers have to keep themselves invested all the time especially if new client-investors are coming in.  Actually, the banks have been holding their own in this downturn.  The likes of UBP, PNB & SECB have not really lost much.  I think the banks can preserve value in this downturn particularly because they lagged the market as a sector in 2009.  Also, they are likely to continue to see earnings growth in 2010 because the economy is bound to do better in an election year, deficit or no deficit on the national budget.

What are we in the middle of, then?  I think the answer is that our market needs to give back some of that 63% gain we got in 2009.  It is called redistribution.  Prices need to fall to levels where people can find comfort.  It is when prices falls to these levels that new players can have good degree of confidence.  We are barely 200 points below the market’s recent peak of around 3130.  That is barely a 6.5% retracement of the big move last year.  I believe that we should be consolidating towards 15% of the peak which is closer to 2800.  I am actually looking forward to that level because I’d like to buy some cheap blue chip stocks.

Generally, I am not too pessimistic about this market.  I like to buy it around the 2800 level and I hope that it gets there.  That does not mean that money cannot be made in between.  I think special situations will continue to emerge and the good thing when the market is coming off, one has a chance to rebuild a very good portfolio.

Overnight in New York, stocks traded up until mid-day before the selling wave ensued.  Earnings are beating forecasts 4-1 yet people want to lighten up.  I believe it is a classic consolidation that’s going on in the developed markets and the large emerging markets mainly the BRIC.  The only way to weather a storm is to head for cover.

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January 27, 2010 - Posted by | Financial markets in Asia

18 Comments »

  1. Good morning Gus,

    Is PNB at 23.00 cheap to buy?

    Thanks!

    Comment by Kier | January 27, 2010 | Reply

  2. Hi Kier,
    I think so. We worked the numbers and our estimate of the book value of the merged PNB-Allied combine is 75 pesos. I am what you consider a long term holder of PNB.

    Comment by Gus Cosio | January 27, 2010 | Reply

  3. I actually got mine at 24 😉

    Comment by wren | January 27, 2010 | Reply

    • Fortunately, my average is below 23. I am still in an accumulate phase for this stock.

      Comment by Gus Cosio | January 27, 2010 | Reply

  4. PNB now at 22.50 I think it will fall to 18.00

    Comment by kier | January 27, 2010 | Reply

    • hi kier,
      18 is a good price to average down.

      Comment by Gus Cosio | January 27, 2010 | Reply

  5. 2800 sir? I’m hoping that it go 2600 so I could save more money as the index tumbles then buy more when comfort sets in.

    Good luck to all of us! 🙂

    Comment by Oliver Mia | January 27, 2010 | Reply

    • Oliver,
      It could get down there. Some people are calling this a retail panic because small volume of selling is able to drive prices lower. Some institutional money is nibbling though slowly. Personally, I look at things bottom up. So instead of looking at the index, I’m looking at the individual stock.

      Comment by Gus Cosio | January 27, 2010 | Reply

  6. Hi Gus
    I got my PNB at P25.50. Should I sell everything at tomorrow’s market price and buy again when it goes down?
    Thanks.

    Comment by Adrian | January 27, 2010 | Reply

    • Hi Adrian,
      The problem with churning a position is that it could cost you a lot more than if you held on to it. For example, PNB is now trading at 22.75 to 23. Do I think that it will go down to 20? Perhaps, but I think that it is less likely. My personal strategy is to add more to my position as it goes significantly lower because my target is to see it closer to 40 by year end. Our analysts estimate the Book value of PNB stand alone is 49 to 50. With the Allied merger, we see Book Value at 75.
      Tell me then, why should I be afraid of holding PNB even at 25.50. What comes to my mind is a quote from Waren Buffet which says something like this: “When you buy a stock that you like and it goes down, you should be happy because you can buy it cheaper.”
      I bought PNB not for a trade but for value meaning I am willing to hold it until it realizes more of its value. That to my mind is real investing at work.

      Comment by Gus Cosio | February 1, 2010 | Reply

      • Hi Gus,
        Thank you for your reply. Kindly explain why do you think PNB price is not moving up inspite of the upcoming merger with Allied, its price way below par, today’s Phil Inquirer reported income doubled, etc.

        Comment by Adrian | February 9, 2010

      • Adrian,
        PNB is not moving up because it is not yet a market favorite and normally non-favorites find it difficult (but not impossible) to buck the stronger sentiment. Obviously, the sentiment was very negative today, so most stocks are down and those who follow PNB are probably waiting for the market to shrug off its fears. I’m not worried about PNB. With the news that they doubled their income in 2009, I feel more confident that the stock will move higher when the negative market sentiment shifts.

        Comment by Gus Cosio | February 9, 2010

  7. Sir Gus,

    Do you know what’s the best price of AGI to buy ?

    Thanks 🙂

    Comment by Kier | January 28, 2010 | Reply

    • Hi again Kier,
      AGI is being accumulated anew by a foreign fund. I lightened up on the stock earlier because it is I think its beta is moving higher and I think the market is going lower. If you are buying it for a 3 month horizon, I would wait for a lower price, perhaps 3.40 or lower. If your horizon is 6 months, you can buy it anytime a current levels. If you’re buying it for a trade, your guess is as good as mine.

      Comment by Gus Cosio | January 29, 2010 | Reply

  8. Hi Gus. Have a few questions:

    1. Whats your take on ALCO. It had a very good run these 2 days. Is it a good buy in its present price?

    2. Whats your take on SPH? Is it a good buy at 3.0 or do you reckon the price still go down?

    Thanks

    Comment by Czar | January 28, 2010 | Reply

  9. Hi Czar,
    I’m afraid I don’t follow ALCO. SPH is not going anywhere in the near future, I think. You can wait until it trades below 3.00. One thing I’m almost sure of is that they will be paying dividends close to last year’s of 0.21.

    Comment by Gus Cosio | January 29, 2010 | Reply

  10. Hi Gus,

    Thank you for writing very informative stuff. I’ve been reading your articles for some time now.

    It is very helpful for newbie stock traders like me.

    Keep it up!

    Comment by jek | January 30, 2010 | Reply

    • you’re welcome Jek!

      Comment by Gus Cosio | February 1, 2010 | Reply


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