Gus Cosio says so

Ideas on the Philippine Stock Market

Can it be good even if it’s cheap?

12:45 pm   Monday    1 February 2010     Philippine Stock Exchange Index  –  2883.21  (-2.37%)

If you are a momentum trader and do not have the facility to short this market, you should stay out.  I mentioned in my last post that I thought this market may be headed for 2800.  Today, it broke through the 2900 level led by  large drops in TEL, AC and MER.  That signals a major sell-off by institutions who own large amounts of these stocks.  Given that volume is quite small, it looks to be very difficult for funds to re-align portfolios.  This gives me greater confidence that 2800 as a level for the index is not far behind.

I am really dejected that the January effect failed us this year.  Opened January with the PSEi at 3005 and ended the month at 2953, after hitting an intra-day high of 3133 on 15 January.  In hindsight, that level looks to be a double top formation giving technical traders a reason to sell.  I don’t think that there are any excuses for not seeing this market tank without adequate warning, but markets are really that treacherous.  If you get a free ride to profits, you are one of the fortunate ones.  Most people who play the market, have to contend with being blindsided, which was what this move that started in the third week of this month when Obama declared his intention of curbing U.S. banks ability to take on risky assets.

I would like to repeat what I said in a previous post that one should not catch a falling knife.  While I think 2800 will be a good level to buy the strong stocks in our market, I would not cast the idea in stone.  If the market is still selling of at that time, I would remain patient and wait.  I have lightened up on most of my high beta stock since those would be the one to fall with this market.  Fortunately, those which have been my recent favorites have not fallen out of bed.  PNB for instance remains on the lower region of its 6 months trading range.  Even PIP has not broken past the 2.20 level yet although it could threaten to go back to its support at 2.00.  PIP is a stock held by a lot of individual traders that it could fall victim to emotional selling.

MER is down to 152 which is no longer a bad level t own the stock.  TEL is at 2585 which is starting to look compelling considering that it will be paying dividend soon.  AC is down to 277.50, but it looks more alike a breakdown in support to me.  AC had  a six month trading range with support at 282.50, and  having penetrated that level today,  it does not look good to me.  MBT is sitting just above its support of 40, a level that I think is very strong.  This would be a stock to watch when the market gives its signs of bottoming.

Stocks like MPI and DMC are similarly looking reasonable given that they are good plays on infrastructure, power and utilities.  Unfortunately, what we are currently battling is market sentiment.  We saw good signs of recovery in the U.S. and domestically yet both these markets reacted negatively.  The Greater China economy which embraces Taiwan and Hong Kong are also performing creditably yet their markets are likewise hitting the tank.  Today, however, the PSEi looks to be the worst performer of the day dropping by 70 points (-2.37%).  I guess traders cannot ignore the fact that in general, the market is generally 60% higher than it was this time last year.  It is a case where some traders and investors do not want to hang on too much to their core holdings at these levels for fear of a major correction of last year’s move.  It appears that investor fears have become self-fulfilling.

Incidentally, there was a block sale of EDC at 5.10 for almost Php 7 billion worth of shares.  It looks like M&A is afoot once again which should start generating speculative activity on some stocks.

My advice really is to approach this market the way Warren Buffet does.  He says that if you buy a stock and it goes down, you should be happy because it means you can buy it cheaper.  What he is saying is that if you buy a stock – or a market – it implies that you like what you are buying – or investing in – fundamentally.  If you think that this market has substance, you should keep your powder dry for the time to return to the trading battlefield.  You could be buying stocks very cheap by then.  As in every battle, you must lay out your strategy and trading plan.  Nobody wins a battle by shooting from the hip.  As Dwight D. Eisenhower was quoted as saying: “Most of the time I find that plans are often not used, yet I find planning indispensible.”

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February 1, 2010 - Posted by | Financial markets in Asia

21 Comments »

  1. Hello Sir Gus!

    What do you think of SM or SMPH? 🙂 It’s staying at 310 right now, while smph is from 9.3-9.5….

    Thanks

    Comment by wren | February 1, 2010 | Reply

  2. Hi Warren,
    SM is the cheapest stock in the Henry Sy group. SMPH is expensive but not as expensive as BDO. Both stocks did not outperform the market last year probably because SMPH loaded itself with a lot of debt in 2008 and 2009. It SMPH has a beta presently at 1 which means it will likely move with the market. SM has a beta of .85 which means it is less volatile than the market. That is why it hasn’t gone down so much as the market. Personally, SM and SMPH are not stocks that I’d like to keep in my portfolio because they are slow moving and do not have much out performance pretty much like MWC. I will tend to buy SMPH & SM if it gets to very cheap levels and I was still uncertain about the market. Personally, I’d use the money in MPI or DMCI which have slightly similar exposure economic exposure.

    Comment by Gus Cosio | February 1, 2010 | Reply

    • Thanks sir gus! 🙂

      Comment by wren | February 1, 2010 | Reply

  3. Sir Gus, I sold 2/3 of my holdings of PAX at a big loss. What do you think is its bottom, more or less? I have also lightened on ICT at some loss but intend to go back. Do you have any idea on its bottom? My average cost for PNB is 24.17, but do not intend to sell, I do intend to buy more if it goes further down. Is this a good move? Sold all my EDC at a 22% profit. You mentioned about EDC in your post, what is a good re- entry point, considering my last sale was at 4.60?

    Comment by Nel Valle | February 1, 2010 | Reply

    • Nel,
      I must apologize on PAX. I have no information on it. It is a stock that I am willing to look at when it is very cheap because of the nature of the BPO business. For ICT, I think it is a pretty good stock which deserves to be in core holdings. I do not see ICT falling a lot; perhaps around 18.50 there would be good support. I think EDC has strong support below 4.50. You’ll likely see very strong bids at 4.40. I think anywhere between 4.40 and 4.50 is a good enry for EDC.

      Comment by Gus Cosio | February 2, 2010 | Reply

  4. Hello Gus,

    Nice analysis. Have you heard about IPVG going for IPO at P50.00 do you think the price is quite high?

    Thanks.

    Comment by kier | February 1, 2010 | Reply

    • I haven’t been following IPVG.

      Comment by Gus Cosio | February 2, 2010 | Reply

  5. Hi Sir Gus,

    Actually I have bought a few MER today at 155 and 153 before reading this blog. Surprise surprise, I still had not bought at the days bottom 🙂

    My portfolio is 93% cash and 7% MER!

    I’m hoping for a little bounce for MER tomorrow. With the current PSE sentiment, I guess I have to do a hit and run from now on.

    Comment by Jek | February 1, 2010 | Reply

    • Jek,
      If you’re 93% cash, you should buy more MER when it goes down significantly. I, for one, because I am 30% in cash, would like the market to go down to 2800 because I would like to buy some stocks cheap. The reason that I am not fazed by this drop in prices is that I am firm on my conviction that in 6 to 8 months time, we will se a market much stronger than today.
      Gus

      Comment by Gus Cosio | February 2, 2010 | Reply

  6. Hello Sir Gus,

    Meg seems to be going down until now, can you help me understand about the warrants? you get to buy 4 shares for every one you own? or you get to a warrant for every 4 shares you own? I’m still a bit confused.. 😦

    Thanks Sir Gus.

    Comment by Wren | February 2, 2010 | Reply

    • right now, because the warrants have already been issued, what matters is just the price of the warrants. 1 warrant is an option for one MEG share.

      Comment by Gus Cosio | February 2, 2010 | Reply

  7. Thanks for the advise sir Gus! Still waiting for MER’s bottom.

    I have heard from other forums that Mr. Pangilinan borrowed some FGEN and MER from the Lopezes and by March it will be paid?

    Is this true?

    Comment by Jek | February 2, 2010 | Reply

    • I’m afraid that rumor has not reached me.

      Comment by Gus Cosio | February 2, 2010 | Reply

      • MPI dropped today from 2.5 to 2.28.. but it could just be the general mood of the market maybe.

        Comment by wren | February 2, 2010

      • warren,
        I wouldn’t want to be too hasty, but I think that 2.28 is not a bad price for MPI. I foresee that MPI will not go much lower than 2.26 because most of the weak holders of this stock have sold down over the last few days with a possible blow-off today. I wouldn’t be surprised if this stock bounced up over the next 2 days. I like the fundamentals on this stock.

        Comment by Gus Cosio | February 2, 2010

      • hehe thanks so much Sir Gus for your insights…

        Comment by wren | February 2, 2010

  8. Nice read, Sir Gus! I have been following your write ups and I find them very useful for my investment decisions. Congratulations and keep them coming!

    Comment by Karl Vincent Catalan | February 2, 2010 | Reply

    • You can count on it.

      Comment by Gus Cosio | February 2, 2010 | Reply

  9. Sir Gus, thanks for your reply. I find your analyses and replies to the different questions very useful and instructive. They gave us confidence in the conclusions we arrive at ourselves re our investments. More power and thanks for your unselfish guidance.

    Comment by Nel Valle | February 3, 2010 | Reply

  10. Dear Sir Gus,

    Have you heard of HyperGrowthStock? Sir Francis gives daily messages to traders who sign up such as the one below:

    Dear Fellow Traders,

    I just wanted to give you a quick update on BGOI trade, the stock opened very strong with a Gap this morning which is not the best way to open, as it sometimes have to come close the gap. As of this writing , this is what is happening and it can probably come back to around $0,055 to do that and then we should probably see some stabilisation before resuming the move up.

    So to trade this intelligently, make sure you have some bids at different levels between $0,05 and $0,058.

    That is the way i am trading this fast mover. And as i said this is a trade that will be good for a few days….

    Francis

    His suggestions are for US based stocks… do you think you could give us similar suggestions for Philippine stocks?

    Comment by Bobby | February 3, 2010 | Reply

    • Bobby,
      The U.S. market has around 7000 listed stocks and a few more thousands trading on the BBO market which is an OTC platform for pre-IPO stocks. Hyper growth stock simply means that the current price to earnings ratio is very, very high implying that this stock may grow exponentially should its business model and business plan start to work. Microsoft was a hyper growth stock in 1990.

      Comment by Gus Cosio | February 4, 2010 | Reply


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