Gus Cosio says so

Ideas on the Philippine Stock Market

Coming out of the woodwork

9:00am    Tuesday  2 March 2010        Philippine Stock Exchange Index   3078.91  (+1.16%)  pre-opening

On Monday’s trades, the property sector really pulled out a good one.  Practically all stocks in this sector went up.  I think that investors are re-thinking strategies in property, now that the major effects of Ondoy are all behind us.  Recall that much of the property sector took a beating right after the typhoon, and it is only now that they are recovering.  If you look back just over a week, it was the up-beat investor presentation of ALI that gave a fresh new outlook on property.  In the next few days, liquid property stocks should be shifting to higher gear.  FLI, for one, should be seeing a comeback since it remains to be one of the undervalued property stocks.  MEG had also tanked a lot from its recent highs that it should make sense to trade MEG and its accompanying warrants MEGW1.  Given the move already seen in ALI and RLC, I think SMPH should be seeing a bounce as well very soon as 9.40 looks cheap for the stock.

Looking at other possibilities, last week, there was an article in the Wall Street Journal about The Coca Cola Company buying up its bottlers in the U.S.  In the deal, they will buy control of Coke bottlers in the U.S., Norway and Sweden.  The deal comes as PepsiCo prepares to close its acquisition of its two largest bottlers — Pepsi Bottling Group and Pepsi Americas.

Analysts say that the moves signal that the soft-drink titans want to take greater control over how and which of their products move through the production pipeline to their consumers.  A Morningstar portfolio analyst wrote: “Over the last decade in mature markets, consumer tastes have shifted away from carbonated soda to still beverages such as juices and ready-to-drink teas and coffees, as consumers have demanded products with a lower sugar content.  In order to mitigate falling volumes and to maintain market share, Coca-Cola has been forced to broaden its portfolio into non soda categories.”

The reason I am pointing this out is not so much that I think that PepsiCo will be buying out the local bottler in the Philippines, but because we know for a fact that while Pepsi is not at the top of the soda pop market, nobody comes close to its Gatorade share of the sports drink market.  When I spoke to the CFO of PIP, he told me that historical sales figures sky-rocket when the weather is hot and dry, and with El Nino firmly in our atmosphere, there is no doubt about sales going in their favor not only in the mass marketed carbonated products but probably even more so in the upmarket, high margin Gatorade line.  We should keep an eye on this stock because it could just pull a surprise soon.  I would suggest watching it for some volume spikes.

I mentioned 2 weeks ago that there may be a move on BPC.  Today’s trades in the stock is signaling a move; after we saw volume spikes on Feb. 11 & 17 and today’s spike, I think there is potential for a sharp us tick.  Given the rumblings going on in MER and FPH, I suspect that it is affecting the price of BPC.  I’m looking at this just for a trade simply because it has given a trading buy signal for me.

The U.S. market opened strongly due to positive news that AIG had sold its Asian operations to Prudential UK.  The news overshadowed the disappointing results from HSBC.  The February ISM figure came in at 56.5 vs. 58.4 in January which was below expectation of 57.5.  The employment index inside the ISM, however, rose to 56.1 from 53.3 which showed that manufacturers are willing to hire when they have new orders.  What impresses me is the steady rise of the Philadelphia Semi Conductor Index which had hit rock bottom in November 2008.  Chip sales rose 0.3 percent in January from December but were up a whopping 47 percent compared to the same period a year ago.  About 50% of the Philippines’ exports is made up of semi-conductors and similar products.

With the U.S. markets gaining some more, I think that local market sentiment should be buoyed.  Over-all, I would still be cautious particularly for index stocks.  I am not of the opinion that we will convincingly break out of the 3100 top of this range.  Strictly speaking, the high is 3130, but I do not wan to be a stickler for too much detail.  Right now, I sense that some profit had been made from the beginning of February until today.  I wouldn’t be surprised if some profit-takers came out of the wood work in the coming days.  As for today, I think a trading buy might work with some stocks.

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March 2, 2010 - Posted by | Financial markets in Asia

8 Comments »

  1. Sir whats the rumbling about FPH?

    Comment by Warren | March 2, 2010 | Reply

    • i would have to second the question posted by warren. i haven’t seen any news yet of the MER-FPH dealing – last i heard is the “loans” should have been settled sometime late Feb. However, it’s already March. I hope you could give some more light on this one sir Gus.

      Comment by jakeonline | March 2, 2010 | Reply

  2. Jake, Warren,
    The recent move of MPI and Piltel to form Beacon Electicity Holdings to hold their MER shares bought the exercise of the option to buy FPH shares closer to conclusion. This would mean an estimate of Php6.6 billion coming to the coffers of FPH. That should give the Lopezes enough cash to address some of the restructured debt at BPC.

    Comment by Gus Cosio | March 2, 2010 | Reply

    • Thanks.

      Comment by Warren | March 3, 2010 | Reply

  3. Hi Gus,

    Wanted to ask your view on the Solid Group Inc. (SGI). Not too excited about their current ventures. Been going thru it and it seems the assets are more valuable than the business itself. Your opinion?

    Ed

    Comment by ed | March 2, 2010 | Reply

    • Ed,
      With stocks like SGI, you can be lucky and buy it just before it moves up. In order to be consistent in your portfolio performance, I would recommend that you trade stocks that trades daily of around 1 million pesos. At least, you know that the stock has a regular following and yo stock.u can sell out when you need the money for a better

      Comment by Gus Cosio | March 2, 2010 | Reply

      • i’m lousy at timing these things so i don’t even try. the dead vs alive perspective was just interesting because of the assets/cash. it is closely held by esl’s family so it makes little difference. thanks.

        Comment by ed | March 5, 2010

      • ed,
        Timiing is everybody’s problem. Not even the best fund managers have perfect timing. That is why it is important to always follow the relative value of the stocks you follow. I am an adherent of arbitrage theory which means that equal cash flows will have only price. Of course, the theory will work with liquid stocks and the proper disclosure of earnings information. This is the reason that most of my focus would be on liquid and well researched stocks. Some of the stocks, I research on my own. Some I also make my own judgment on acceptable liquidity. Timing is a lot of guesswork. Technical analysis may help but, I do not use it as the be all and end all of my trading decisions.

        Comment by Gus Cosio | March 6, 2010


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