Gus Cosio says so

Ideas on the Philippine Stock Market

Looking beyond

11:30 am   Monday    22 February 2010     Philippine Stock Exchange Index     3000.54  (mid-seesion up 22 points or +0.74%)

Overall, It looks like the markets have taken the hike in the U.S. discount rate positively.  The message that is being received is precisely what the U.S. FED wanted to communicate, and that is that the economy is beginning to normalize.  Since the discount window is an emergency channel for banks in trouble, the general idea is that the banking system as a whole is out of the woods and is no longer in need of emergency assistance.  Such a message should reassure most investors that things will not be as bad as they were in the beginning of 2009 and the worst is definitely behind us.

Will that be good for the market in Manila?

I think that it should be.  Essentially, we have a banking sector that had been in very healthy shape.  The way the economy behave last year and the better prospects that face us this year, local banks should be in even better shape.  That is likely to lead to a freer flow of credit to companies who need to open up new businesses.  That would also mean that consumer loans will continue to be available.

As far as long-term interest rates are concerned, the only major threat is the budget deficit of the national government; but that does not look like it is going out of hand.  There would be very many ways to finance that money hole ranging from asset sales by government, more foreign borrowing and larger issuance of peso long-term bonds.  Fortunately, the country’s savings investment gap (ex ante) continues to grow wider as most savers in this economy chose to keep their assets in cash.

In this backdrop, I cannot but conclude that in spite of these ups and downs that we are seeing, the direction that I see beyond the first semester of 2010 is up.  When 2010 began, I thought that this market should easily gain 15% by the end of the year.  From where we are today, my view of the potential of this market is around an 18% gain among the large cap stocks.  The question is not whether a stock investor will make money, but whether it will be 15% or better.

Last week, a reader asked me this question: “If I had Php 25,000 to put into the market, what 2 stocks should I buy?’  My answer was that I would buy PNB and either DMC, MPI or AP.”  Regular readers would have realized by now that  am a long-term holder of PNB, and this is because this is one stock that I think should double in the next 12 months as soon as its merger with Allied Bank goes through.  The reason I like DMC is that it is an excellent infrastructure play; it has power, water and civil engineering the very components of a complete infrastructure play.  I think MPI amounts to the same thing except that it is slightly more expensive than DMC; but that is reasonable because they own a ion’s share of MER which will continue to be an expensive stock.  I like AP because they look to be a low-cost producer of electric power which the country badly needs.  They will have excellent margins because they sell a good portion of their output to the spot market where prices are generally higher.

All that said, I have very good reason to like the market’s trend.  I have to caution, however, that I do not see a straight ascending move.  Rather, I see a resistance of buying and possibly profit taking when the index hits 3100, so I would recommend not to chase prices when markets are strong.  As usual, money management should never be left aside in trading this market.  It is always better to have cash in your portfolio because every now and then the market allows you to buy things cheaper.

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February 22, 2010 - Posted by | Financial markets in Asia

40 Comments »

  1. Thanks for this insight…can you further explain, the increasing price in AP?

    What will be the resistance level? at what price should we stop buying it?

    I also like PNB and let me take your word from it.

    Comment by Bullish Trader | February 22, 2010 | Reply

  2. Hi Gus,

    Thank you for your suggestions for the P 25,000 initial investment in stocks for one of your fans. We shall appreciate similar specific suggestions in your articles to allow us to ride on your buy or sell options. We read an article suggesting a “buy” for URC. What do you think ? Thank you again.

    Comment by Bobby | February 22, 2010 | Reply

    • I recommeded a buy in URC 6 months ago when it was around 12. The upside from today’s price of around 21 is limited already. You might do better with PIP now that sugar prices have peaked.

      Comment by Gus Cosio | February 22, 2010 | Reply

  3. Hi there Gus,

    I’m an avid reader of your site. I bought a lot of AP last Wednesday at 11.50. It’s kinda moving sideways recently. And I’m a little bothered by that. Should this cause concern? What is the short term and medium term target price for this stock? And what is your future outlook for this stock?

    Comment by mark | February 22, 2010 | Reply

    • Mark,
      AP is such a good stock that you should be not lose sleep over it. Stocks will always go through a bumpy ride and it even seems more bumpy once you’ve bought it. I think AP will be at 15 by the end of 2010. No use worrying even if it goes down to 10. I am a buyer of AP and I’ll be happy if it goes down. Warren buffet says that if you buy a stock and it goes down, you should be happy because you can buy more. So if it goes to 10, buy some more. No sense in worrying about centavos when the bigger bucks are available down the road. To be a successful investor, you don’t have to have a high IQ; you just have to have a high patience threshold.

      Comment by Gus Cosio | February 23, 2010 | Reply

  4. Hi Sir Gus,

    I know that you prefer to hold PSB for long term but I was wondering if there is a possibility for PSB to have a good dividend play like GLO.

    I am under the impression that you have been following this stock for quite a while and would like to ask if liquidity would still be a problem considering the Php 2.75 cash dividend.

    Thanks,

    Oliver

    Comment by Oliver Mia | February 22, 2010 | Reply

    • Oliver,
      do not forget that if you buy PSB, you must be prepared to hold it for sometime. This is not a stock that you can trade easily. It is a very good and profitable bank though, so making it a long term hold should not be a problem. If you really want dividend, TEL has one of the highest dividend yield.

      Comment by Gus Cosio | February 22, 2010 | Reply

  5. Sir Gus,

    I am considering opening an account for my minor child (7 years old) to be administered by myself. I just think that the way that the interest rate is expected to be for the next few years, he would be better of investing his ampao in stocks, using the peso cost averaging method.

    Do you think that I should buy small cap stocks that are relatively stable but have potential for huge growth, although currently not liquidly traded (Secb, PSB, PIP, etc), hoping that they become leaders in the distant future, or should I just go with the most stable ones (MWC, ALI, etc.) and then take a gamble on a small position of AT?

    Or if you have any other suggestions (specific stock or to just go with UITF), please let me know. Some of your readers might also benefit from this.

    Thanks so much.

    Comment by Warren | February 23, 2010 | Reply

    • Warren,
      If you are investing for your son, I would recommend a mutual fund instead of managing a portfolio your self. It is very tempting to trade it and in the end you might just make it an excuse to keep on flipping the portfolio because, i must admit, trading stocks is quite a turn on.
      To really want to accumulate perhaps and educational or a seed capital fund for your son, may I suggest that you invest in a mutual fund with a view of adding regularly perhaps on a monthly basis. With a mutual fund, you can open at 5,000 and put in 1,000 a month until your son reaches 18, 21 or so. This way, you will be cost averaging naturally and your fund value will on a normal basis always above your cost. May I suggest that you visit http://www.fami.com.ph where you can learn more about mutual funds.

      Comment by Gus Cosio | February 23, 2010 | Reply

      • I have had some experience with mutual funds, and I will probably go with this instead. Thanks!

        Comment by Warren | February 23, 2010

  6. Sir Gus,

    I have another question, I hope you don’t mind.

    What’s your outlook for oil over the next three years, do you think that it will stay at a level that will inspire further oil exploration? I’m looking to accumulate stock in a company that that does not benefit from oil prices directly but indirectly because it constructs/provides exploration infrastructure,supplies.

    May I also know what you think of Philodril? I have been stuck with this stock and am very disappointed that the the price has been plastered to below .015 even though Galoc has been mining and selling oil at $70+ per barrel at an average cost of $35 per barrel.

    Thanks!

    Comment by Warren | February 23, 2010 | Reply

  7. Warren,
    I cannot predict the price of oil but from the research that I have been reading, I think that oil will have difficulty trading below 70 a barrel. If at all, the sure bottom is 65 because the cost of extraction is mostly above $60 a barrel. I think that by year end we’ll see oil at $85 or $90.
    I own some Philodrill as a speculative item in my portfolio. Perhaps, one of these days it will just shoot up. I don’t even bother checking the price. It’s like drop dead money which I put in the stock which I am ready to lose anyway. If the stock goes up to 1 peso, then I’ll sell.
    By the way, I don’t think that their cost is as low as $35. Even the cheapest barrel in Saudi Arabia is above $40 already.

    Comment by Gus Cosio | February 23, 2010 | Reply

    • I think they made a press release about a year ago. Maybe it has increased since then.

      Thanks. I will probably do the same. If it does reach one peso then it will be well worth the trouble.

      Comment by Warren | February 23, 2010 | Reply

  8. Hi sir gus! regarding your conversation with mark regarding AP, when i checked the PSE stock quotes of all shares i cant seem to find this stock. May i ask what is the security name of this stock?(sorry for such a newbie question) perhaps i could find it easier that way. tnx!

    Comment by JimBoy | February 23, 2010 | Reply

    • Jim,
      You can find the stock in PSEi. This is a main index stock. the ALLSHARE index is not a list of all the shares listed. It is merely a broad index which hardly anyone follows. You can also type “AP” in the box which says “GET QUOTE”; I hope this helps.

      Comment by Gus Cosio | February 23, 2010 | Reply

    • Jim,
      AP is Aboitiz Power.

      Comment by Gus Cosio | February 23, 2010 | Reply

  9. thank you very much sir gus! 🙂 so is it better to pick stocks in PSEi, Financial index, Industrial Index etc. rather in the all share index? Why is this so?

    Comment by JimBoy | February 23, 2010 | Reply

    • Jim,
      It does not really follow that line of reasoning. It is just the more active stocks are those in the PSEi. You have PIP, SPH, PNB, MPI, ABS that are not in the PSEi but trade well. The index stocks are normally traded by the institutional fund managers.

      Comment by Gus Cosio | February 23, 2010 | Reply

  10. Thanks for the comforting words with regards to AP. Damn El Nino! hahaha! Do you also have an idea as to how much the cash dividend AP would be handing out? Cash dividend is scheduled this coming March right?

    Comment by mark | February 23, 2010 | Reply

    • Mark,
      AP paid 20 centavos dividend last year. They could raise that this year since earnings are far higher in 2009 than in 2008.

      Comment by Gus Cosio | February 23, 2010 | Reply

      • hope it’s as high as 1 peso!

        Comment by mark | February 23, 2010

  11. You mentioned above that you are a long term holder of PNB and you thought that it might double when the merging is done. Do you have an idea as to when the merger will be done? 3rd or 4th quarter this year?

    Comment by mark | February 23, 2010 | Reply

    • Mark,
      I actually have no idea when except I know that the process is going on. But look at it this way; if the stock goes to 30 in 12 months, that is a 35% return. That is not very easy to find nowadays. I decided to be patient on this one because while I do not know when it will happen, I am very sure that it will happen.

      Comment by Gus Cosio | February 23, 2010 | Reply

  12. Thank you Gus! More power to you! AP to me! hehehe!

    Comment by mark | February 23, 2010 | Reply

  13. Hi Sir Gus, I really appreciate how you answers the querries of your readers. You patiently answers their questions even if sometimes not anymore related to stocks. I would like to know if my stocks has a future. Right now i have IP, MPI, CPM, MEG, SPH, ZHI and APC. I have limited funds that’s why i invested that kind of stocks. It’s my friends suggestion. I hope i’ll be guided by your opinion. Thanks

    Comment by ella | February 23, 2010 | Reply

    • Ella,
      In your existing portfolio, I am most comfortable with MPI, SPH, and MEG. If you notice these are very transparent stocks and a lot of traders understand what is going on. IP is probably also transparent, it’s jut that I don’t have deep insight in the stock. CPM is a mining stock that was selectively distributed to friendly customers of the promoter; this stock scares me because I have no idea of its real fundamentals. ZHI and APC are very speculative and to my recollection, there is very little in it. You may be lucky and see ZHI and APC zoom up but I wouldn’t know why that would happen. I would recommend then that you sell ZHI and APC and move the money to MPI and MEG. Read more about IP because it does have the BPO and IT businesses behind it. It has a chance of going back above 2. SPH is a little tricky, but your consolation is that it is surely to pay dividends.
      I would also ask you define for yourself what you are trying to do in your portfolio. In my case, my objective in my portfolio is to make around 20% return this year. With this in mind, I have decided that my core portfolio consist of TEL, PNB, DMC and MPI. I would shift from time to time to AP, AC and perhaps FGEN and EDC. Hopefully those moves earn me my target return for 2010.

      Comment by Gus Cosio | February 23, 2010 | Reply

  14. Hi Gus,

    Whats your take on ACR? the stock seems to be struggling between .80 -.90 and has lost much of its value coming from a peak of 1.40 in dec… with El Nino looming as a real threat, do u think that the coal-fired power plant proposed in mindanao would eventually push through?

    I have also positions in LIHC and PAX but it seems that there’s a lot of bearish sentiments on these two…

    Regards

    Comment by Mike Nacua | February 23, 2010 | Reply

    • Mike,
      ACR may take some time to benefit from the Tampakan mine which is the crux of the speculation. The mine belongs to the Alcantaras and not to ACR. They are finding a way to inject it into ACR in order to make the stock more of a mining play. That will take some more time to execute. There is, however, light at the end of the tunnel. It really depends on how long you wish to wait and if you think that the exit price will be worth it.

      Comment by Gus Cosio | February 23, 2010 | Reply

  15. tnx gus! you’re the man!! hehe bdwy in ur article today, it said “I think MPI amounts to the same thing except that it is slightly more expensive than DMC”, i think its the other way around, coz DMC is more expensive than MPI.. correct me if im wrong hehe :)bdwy it seems you’re having more and more avid readers, great job!

    Comment by JimBoy | February 23, 2010 | Reply

    • Jim,
      I value stocks not on the basis of what the price says but what earnings they bring. MPI is 2.70 but is trading at 16X earnings while DMC is trading at 10.50 but is only 7.5X earnings or P/E. The P/E reflects the amount of market capital per share needed to produce 1 peso of earnings. DMC needs only 7.5 while MPI needs 16, that is why DMC is cheaper.

      Comment by Gus Cosio | February 23, 2010 | Reply

  16. Another way to look at the P/E is this, if the earnings of MPI and DMC remain constant, it will take you 16 years to get your money back if you invest in MPI while it will only take you 7.5 years if you invest in DMC.

    Of course, earnings hardly remain constant. If earnings grow, P/Es will be better, which means you get your money back faster.

    Comment by GusCosio Fan | February 24, 2010 | Reply

    • Jerbax.
      Thank You very much. I welcome comments, concepts and views that would add to people’s knowledge of the things that create the dynamics of stocks and the market.

      Comment by Gus Cosio | February 24, 2010 | Reply

  17. Hi sir Gus, Thank you so much for all the suggestions and comments regarding my stocks. Now i’m already decided to sell my ZHI and APC coz I’ve been planning to do that a month ago but I’m hesitant coz I’m hoping that it will go up in the future. I’ve been trading speculative stocks sir. Some made money but some are losing and i’m still holding it. I’ve learn a lesson from you i must invest the company not the stocks. I want to buy PNB but my price is 20.00. Is it possible? I’ve heard the market would go down to 2,750 or even worst to 2,500 level. Is is posibble? Thanks and more power sir.. Mabuhay ka… you are one of a kind.

    Comment by ella | February 24, 2010 | Reply

    • Hi Ella,
      My suggestion is that if you have chosen a stock to invest in, buy a portion already especially if the market is down like today. If it goes down, buy the rest of your desired investment. You can add more for as long as you like the stock which means that you should follow information regarding the company.
      Do I think that the market will go down to 2750? It could but that would happen if there is really very bad news. My strategy as of the moment is to sell when the index goes to or approaches 3100. If it drops to 2800 or closer, I am prepared to buy stock from my selected list.

      Comment by Gus Cosio | February 24, 2010 | Reply

  18. Hi sir Gus! You are really amazing sir you really answers questions even how simple it is.. I already sold my APC but ZHI i can’t let go coz i’ll be losing 25%. Maybe i’ll wait more days or weeks. Based on your opinion sir you mean i must stay liquid until the index goes down to 2800 level? I’m planning to buy MER and DMC. But I am hesitant coz I’m afraid it will go down further and sir I am considering RSI in buying stocks and as of today their RSI’s are high. Do you believe in RSI sir? Sorry sir I have so many questions. I just want to know your opinion. Thanks a lot.

    Comment by ella | February 26, 2010 | Reply

  19. Ella,
    I also use the RSI as an input to entry decisions. You will notice that the RSI may go down but the stock price has gone down so little. For DMCI, I would wait for the RSI to come down a bit more. For MER, I would rather look for the price to come closer to 160, then see if it makes sense to buy based on the RSI reading at the time.

    Comment by Gus Cosio | February 26, 2010 | Reply

  20. thanks sir. So what i’m gonna do this time is to stay liquid and wait when the market corrects. How about UBP i’ve noticed its P/E is low. Is this a good stock to buy? So far when i look at the bloomberg the P/E of UBP is 6.37. but the rsi is 50 for 14 days. Between PNB and UBP sir which one you will choose? More power sir.. Mabuhay ka

    Comment by ella | March 2, 2010 | Reply

    • Ella,
      UBP is probably in a better condition than PNB right now, but with PNB you could double your money in 12 months. I only see a 20 to 30 percent rise in UBP in the next 12 months. It really depends if you think you have the patience to wait for PNB’s big move.

      Comment by Gus Cosio | March 2, 2010 | Reply

  21. ok thanks sir Gus. I have now an idea on what to buy. You know what sir knowing your website is a blessing coz it enlightens me on how to choose a good company and where to put my investment. Before i just put my money to speculative stocks now i’ve learned a lot from you. how i wish sir someday i could do good things like what you did. Answering questions of my fellow investors and for those who want to know about investing. Sir do you consider BETA, Price to book, and Enterprise value of a certain stocks? Thanks a lot..

    Comment by ella | March 3, 2010 | Reply

    • Ella,
      When you trade stocks you must understand all these terms so that you can make informed decisions. The important aspect of stock trading is knowing the right information for the particular strategy that you are taking.

      Comment by Gus Cosio | March 3, 2010 | Reply


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