Wisdom from readers
6:00 pm Tuesday 23 February 2010 Philippine Stock Exchange Index 3013.14 (-0.08%)
A reader – Anthony – pointed out to me earlier today referring to MPI: “I also noticed that the volume of shares traded today was significantly higher than the past week. Is there something going on with the company? Is it poised to start an uphill climb in the next few days?”
I am a strong adherent of demand supply dynamics which to my mind is invaluable when you are tracking the market. I associate rising volume or value turnover to rising demand. If you observe stocks, you will notice that increasing value turnover can only happen when interest is increasing in a stock, i.e. buyers are accumulating the stock. When nobody likes a stock – the demand is weak – there can be no volume in the trading activity. As a matter of fact, weak volume is an indication of a price that is slowly eroding because no one is buying.
It is a very good observation from Anthony who wrote this comment. A volume spike is what algorithm traders in developed market follows because while the batting average in buying stocks with volume spikes is not 100%, it gives you better than a fifty-fifty chance of making money. If you are a short-term trader that is chance ratio that you would want. I guess what Anthony has alarmed us to is a possible up move of MPI so we should not ignore this stock in the next couple of days. If we see some selling in this stock yet it clears a huge volume, then there is no doubt that money is to be made.
Taking a cue from trading volume concepts, a stock that had both price and volume spike is DMC which to my mind is a cheap stock. It is also and index stock so I think we can expect value turnover or volume to build up some more in the coming days. I had said before that this is a stock I really like because of their strong niche in the infrastructure business. I think that we will see some pull back on this stock and if volume remains high, I think this should move closer to 15 in a few months time. I would recommend keeping an eye on this one.
Another stock that I observe is PIP which saw volume rise last Thursday and Friday (Feb 18 & 19). However, volume dropped yesterday and today (Feb 22 & 23), yet price has been steady. Is the lower volume today a signal that traders are abandoning the stock. Well, this stock is an off and on trader. It really depends if there is someone pushing behind it. While there is not sign of that at the moment, the stock has good value given that it is trading 9X trailing earnings. Upside may be limited to its nearby high of 2.55, but it looks like a stock to trade with little fear of getting stock. It pays o.10 regular dividends plus an occasional special dividend. What I’m saying is that even if volume consideration is inconclusive, there is merit in speculating on a stock like this.
While I am a value investor at heart, I can’t resist a value stock than can also be a speculator’s target. It’s like getting the best of both worlds. I also appreciate ideas from other investors that make a lot of sense.
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Gus Cosio at the Merrill Lynch 2008 Rising Stars Conference in Singapore
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Gus Cosio says so 
Hi Sir,
Based from what I have observed on the MPI transactions the past few days, most of the buys are from broker 323 (CLSA).
I’m holding MPI for 3 months now, since I bought them last November @ the 2.55 – 2.75 range. I’m looking forward for that uptrend price action soon!
Norlan,
You own MPI at aa good level. I think the wider range would be 2.55 to 3.25 while the narrower should be 2.70 to 3.00. I don’t think that it will move out of this range this next few weeks.
Sir gus,
I would like to ask your opinion on LC. As I remember, I read that you have this stock in your portfolio..Thanks
Jolly,
Unfortunately, not all I buy goes up. LC looks to be one of them, but the reason I hold on to it is because I know that talks are still going on with some buyers of LC because of their huge reserves. Notice that it does not fall much lower than .23 although the high has only been .27 several weeks back. If you believe in hard commodities, you can buy this at .23 or lower. It should not fall much lower than that for as long as the Chinese are stockpiling on base metals.
Hi Gus,
You’ve noted that volume plus price appreciation is generally considered as a good indicator. How does a high volume price increase with a considerable number of crosses interpreted though. What’s the usual story behind these events?
Thanks,
Joshua
Joshua,
Crosses, as differentiated from block sales, are just like any normal transaction. This happens because sometimes brokers have to warehouse trades until they accumulate a substantial amount for their client. Fund managers do not like to write many small tickets because many small transactions costs more money than one large transaction.
Block trades are those that happen because of M&A related activity.
Hello Mr. Cosio,
I bought TEL today because I am anticipating further price action on this soon due to the dividends. However, I noticed that trading volumes for TEL are quite erratic. Is there a possibility that TEL will remain range bound (2500-2700) despite the dividend play because volumes are not increasing much?
I noticed that when the market was correcting a few weeks back, Globe , which also had an upcoming dividend, remained strong. Will we expect the same of TEL if the market corrects?
THanks Sir!
Charmagne,
I think TEL’s downside should not be further than 2500 even after the dividend is given. Even if it does, it is still a cheap stock considering that it is the most important stock in the Philippine market. It should actually trade at a premium. I’m keeping my TEL as a core investment.
Thank you very much, Sir!
I have been playing with third liners for the past few months – sometimes I win, sometimes I lose. I bought TEL and URC for the first time yesterday because I want some security in my portfolio….thanks again!
Charmagne,
URC stood still at 20.75 even as the broad market went down by 1.08%. Actually, there was some profit taking on TEL. I hope that you are not bothered by the decline in the price of TEL. Remember that you will be getting over 100 pesos in dividends for each share you own probably next month. I think having URC and TEL as cor holdings is good and safe. If you have more cash to invest, I recommend that you pick up either FGEN, AP, MPI or DMC.
A colleague of mine pointed out to me today that investors, retail and institutional alike, remained sidelined given the recent volatilities in various asset classes. He made this observation after noting that SDAs (special deposit accounts kept with the BSP) reached Php737 billion in early Feb, which was already higher than last year’s high of Php709 billion. He said that on consolidated basis, both RRPs and SDAs already amounts to some Php900 billion in total and that more is on the way with the maturity of FXTN 3-16.
The question to my mind is whether funds like these would ever find their way into the equities or whether these types are really predisposed towards fixed income instruments, corporate or otherwise… it would be great if they do, but my thinking at this point is that they won’t. Would you have a different take on this, Sir Gus?
Jet,
The Philippines is a country where a very small proportion of the population allocate their savings to equities for a variety of reasons. One major reason is an unfamiliarity with the market and a lack of appreciation of the risk-reward relationship. This is why many stick to the money market in spite of very low yields.
Inevitably, some get enticed to the equity markets through UITFs and Mutual Funds because people are starting to be familiar with these vehicles.
Those that are already investing in the market are the ones who will eventually reduce their money market allocation and increase their equity positions.
Yes, I think that the excess cash parked in SDAs will eventually find its way to the equity markets. I reckon that it would happen after the elections.
Hi Gus,
Would like to know your opinion on COAT. this stock has a trailing P/E of 7.. Debt to Equity 0.14; -17% vs. BVPS… plus consistent dividends (regular and special).. It seems that this stock doesnt get the attention that it deserves…
Mike,
You’ve actually hit the button. COAT is a value stock yet quite neglected simply because it is a small cap stock. I like the stock but it is not a trader so buying it would require some patience and waiting. Nevertheless, you will be compensated for waiting since it pays dividend. If you are happy with this stock, take a small position and see what happens. I’d be more comfortable in COAT than any of the speculative plays that we’ve seen so far.
Thanks for the insight Gus, actually it’s one of my core portfolio along with GLO, CHIB and VLL… Like you, im a believer of value investing but I do have minor positions on speculative stocks..
Sir Gus, how do you know that a company is going to give dividends? or specifically how do investors know the date for dividend release? are all companies listed in the PSE declare dividends?how often? and say, TEL is scheduled to declare their dividend on March 30, if i buy there stock on March 29, am i still entitled for the dividend? what if i buy it the day after the dividend is declared? do i still get it? sorry for all those newbie questions sir gus..tnx in advance 🙂
Hey JimBoy,
I will answer your question, if I may.
You can go to pse.com.ph. Under Market Information, click on Dividends/Rights. Plug in the name of your stock, and it should provide a history of the dividends they have offered. It will also tell you when the dividend was offered, and when you should have held the stock to qualify for that dividend.
If you sign up with either Bloomberg or Reuters and post an online portfolio, you will receive news reels of the stocks you currently own, or are watching. They will let you know once they announce the dividend. I personally like using these websites because the PSE website isn’t the greatest to navigate.
Note that the dividend they post is also taxed so you might get a fraction of the original dividend removed when you actually receive it in your account.
Hope that helps!