Gus Cosio says so

Ideas on the Philippine Stock Market

Real estate and real money

10:20 am    Monday    1 March 2010    Philippine Stock Exchange Index   3048.44 (mid-session)

Friday’s GDP report showed the U.S. economy growing by 5.9 percent in the fourth quarter, higher than the initial estimate of 5.7 percent.  Much of growth, however, was due to a paring down of inventories, not underlying spending, prompting concerns about the all-important consumer.  Other data released showed that sales of previously owned homes unexpectedly dropped 7.2 percent in January to a seven-month low.  This follows data released Wednesday showing new home sales in the same month had slumped to its worst level in 47 years. It was the worst pace since the Commerce Department started keeping records indicating a lack of job growth is undermining government incentives to bolster the housing market.

So why is it that in spite of such mixed signals, the broad U.S. market ended session still a shade higher?  For the month, the U.S. market gained 3 percent.  That gain came even as European markets  reeled on the back of the credit crisis in Greece and anxiety over Italy, Spain, Portugal and Ireland.  Some analysts are anxious that the current rally may be over because the U.S. economy does not really look to be bouncing back.  Nevertheless, the assurance by FED chairman Bernanke that interest rates are not poised to rise oner the next few months gave some assurance that the liquidity party is still on.

Fortunately, in our part of the world, the fundamentals are much better.  Taiwan’s 4Q09 growth was around 9%, Thailand’s was way over 5% while those of Malaysia and Singapore were just below 5%.  Of course we all know that China’s growth has gone back on track.  What I would like to point out is that our preoccupation with the U.S. economy might cloud our view of the real situation in our local market.  Similarly, we should not ignore the local liquidity conditions because while the total number of investors in the stock market is not very large, the amount of funds at their command is huge compared to the size of the market.  Combined with the additional liquidity from foreign investors, we could really expect local stocks to enjoy good support even when bad news bears on prices.  Nevertheless, I cannot stress the importance of following the fundamentals of each stock, even the specially the small cap stocks.

Today, the market does not look like it will be going strongly in one direction; but being the beginning of a new month, there is more sense in investors picking up some strong stock.  Investors must, however, avoid over valued stocks; and one such stock is MER.  I liked this stock when it was trading below 160, but I think it has gone ahead of itself because apparently a deal is being negotiated with the Ramon Ang cum SMC stake.  It is very dangerous for those who are not in the know to get into the middle of a storm like this one.  If you really wanted to play the game, it would be safer to do it via MPI after all, the stock is not expensive at all at 2.65 – 2.70 where it is trading today.

ALI has also gone on a new drive to win investors raising dividend pay-out to 50% of core earnings.  It looks like property companies have become very constructive on their performance over the next few years with the passage of the REIT Law.  This law enables them to spin-off assets which have solid rental income into listed REITS and bring back a lot of cash for new developments.  I believe property companies with a good portfolio of malls and commercial rentals will benefit greatly from this law.

Anyway, there seems to be some juice left in this market although I am sticking to my strategy of trading the range between 2800 and 3100 meaning that I am a better seller when the index approaches 3100 and a better buyer when it tanks to around 2800.  I don’t think it would go way beyond those numbers.

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

16 Comments »

  1. Hello Sir gus!

    have you noticed jgs today? It was from 6.4 and suddenly jumped to 7.1! I wonder what happened..

    Comment by wren | March 1, 2010 | Reply

  2. Wren,
    I’ve been following JGS since someone asked me about it a week or two ago. URC and RLC are just too strong so as not to affect JGS. Is it worth punting? I think so, but the safer bet is to trade URC or RLC. They have greater liquidity and their values are more straightforward.

    Comment by Gus Cosio | March 1, 2010 | Reply

    • Sir Gus,

      I was the one who asked you about it.

      After your comments, my conclusion was that this would do an AEV type of movement, that is, consolidate under the radar of the analysts and suddenly spike.

      I think that once the RLC REIT is implemented, JGS’s cash flow should increase quite significantly. URC will also likely contribute to future cash flow. Their petro Chem business, as you mentioned, will probably do nothing but drag the company (hopefully that is already priced in), but I’m hoping for a “turn around” story from Digitel in the latter part of the year.

      Sir is the Petro chem business of JGS really hopeless? I’m not very familiar with it.

      Regards,

      Warren

      Comment by Warren | March 1, 2010 | Reply

      • Warren,
        Unfortunately, like many old timers in this market, my eyes have been jaded when I look at JGS because it has disappointed so many times. However, you may be right that all the bad news has been priced in. After all, JGS is still one of the strongest conglomerates in this country and most of their operating companies should be doing well. Perhaps fortunes will change at Digitel. By the way, Robinson Savings Bank is inside JGS and I hear that the bank is doing quite well. You may be correct in seeing some favor in JGS. It is actually undervalued even now I think it is trading below 10X trailing 12 months earnings and is only 0.55X book value.

        Comment by Gus Cosio | March 1, 2010

  3. Do you know what happened to LND?

    Comment by Terry Uy | March 1, 2010 | Reply

    • I read that the reason for the 50% rise in LND was because it reported profits in 1QFY2010 (CY4Q2009). I understand that the company had to slow its expansion activities after the Asian financial crisis, but that it is now seeking JV partners that would help develop its “massive” landbank.

      Comment by Jet | March 1, 2010 | Reply

      • Jet, Terry,
        I noticed that the property index outperformed the other sectors. I don’t really know much about LND except that they had left a lot of their subdivision developments with very few residents. I hope that they have decided to push more houses in their subdivisions so that the land prices can catch up.

        Comment by Gus Cosio | March 1, 2010

  4. What happened to LND?

    Comment by Terry Uy | March 1, 2010 | Reply

  5. Hi Sir Gus!

    How about CMT? Will 2010 be a good year for the cement industry?

    Thanks sir!

    Comment by jolly | March 1, 2010 | Reply

    • Jolly,
      My fund manager friend thinks that CMT has very good numbers. Unfortunately, it is a slow moving stock so you’ll need a lot of patience. It’s the kind of stock that moves very sharply when it does. It’s a matter of luck with a stock like this. For example today, LND moved sharply higher. It would have meant a matter of luck because there was no story developing that I was aware of. It just jumped.

      Comment by Gus Cosio | March 1, 2010 | Reply

  6. Hello Sir Gus,

    I am pretty amazed on how you compute a company’s stock value, you can say if it is expensive or not. Can you tell us in details how do you do that?

    Regards!

    Comment by Ryan | March 1, 2010 | Reply

    • Ryan,
      I look at the figures Bloomberg.com and reuters.com and search out other available data. Then I make comparisons of Price-Earnings ratios, Price to Book ratios, Dividend yields, historical prices, and the market condition on the stock. Those information are available to all of us.

      Comment by Gus Cosio | March 2, 2010 | Reply

  7. Hi Sir Gus,

    I’m also a lil bit curious on LND as to why it manage to rise so much today? Is it a good buy considering it might be a very undervalued stock, just waiting to be discovered? Improvements in profits in its latest earnings report, aggressive cost-cutting, JV plans – i.e. possible BPO near Trinoma, & renewed focus on socialized housing may have finally push it to go up. According to its CEO, they are now also re-organizing for a big re-branding and re-launching this year to jump-start its projects. Are these data telling us something?

    LND Fil-Estate Land 01-Mar-2010

    PAR BVPS LAST vs PAR vs BVPS
    1.00 2.76 0.48 -52.00% -82.61%

    Comment by James T. | March 2, 2010 | Reply

    • James,
      Around 10 years ago, the market got burned a lot with LND. On top of that, a lot of issues arose from Fil-Estate projects: things like title disputes and legal counter claims. Also, they were also linked to the College Assurance Plan (CAP) fiasco. There is a lot of skepticism with which people look at this stock, that is why it is cheap. That is not to say that it cannot be revived. I will not dissuade you from trading this stock because as you saw in the last couple of days, you could make a lot of money. Just remember that when you trade LND, you will encounter liquidity hurdles many times over. Try to get the information right, and if you can hack the hurdles and the skepticism, trade LND by all means. Sometimes, it is all a matter of luck. I just know that when I trade stocks, the more I know about the stock, the easier it gets to be lucky.

      Comment by Gus Cosio | March 2, 2010 | Reply

      • Thanks for the nugget of wisdom especially on the CAP fiasco thing. I didnt knew it was involved in it. Come to think of it, it makes sense that people has been avoiding LND for many years now. I’ll try to dig more and see how it moves if the volume will hold. So far, so good. Thanks again!

        Comment by James | March 3, 2010

      • James,
        My latest info on LND is that the management has approached a few banks to get new financing for projects. They look to be seriously reviving their business. I really hope they can successfully get financing because I own a 300 sqm lot in one of their developments and the price has not appreciated all these years. As for the stock itself, it is not a hopeless stock. I find that stocks that have real stories behind them are worth at least a look. Seeing that people are looking for things to buy, it is possible to see some money in trading LND; just be careful when you take a position and do not fall in love with it.

        Comment by Gus Cosio | March 3, 2010


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