Gus Cosio says so

Ideas on the Philippine Stock Market

Keeping investors aware

7:00am  Tuesday   9 March 2010   Philippine Stock exchange Index  3094.98  (+0.826%)

When following the Philippine stock market, it is very important to catch the prevailing mood of investors.  The market is here is quite small in both daily value turnover and in the absolute number of individuals and institution who regularly get involved in the market.  In my estimation, there are probably around 60 to 65 stocks that are really worth following from a total roster of 240 or so listed stocks.  The reason for this is that many of the listed stocks do not trade regularly, even if the company has excellent qualities.

One example is PSB which is one of the biggest and probably the best run savings bank in the country.  PSB boasts of a state-of-the-art backroom that is able to address customer needs on a very timely basis.  It’s ATM delivery system is second to none and its diversified loan portfolio can stand the scrutiny of the strictest of bank regulators.  On top of all this, PSB is a very profitable bank.  Why then is there very low liquidity in the stock?  I guess the answer is that it is so tightly held by existing shareholders who are afraid to let go for fear of not being able to buy it back again.  They would rather hang on and benefit from perhaps regular dividends and a steady increase in the stock’s book value.

Another stock was one which was pointed out by a reader, Mike, who asked me about COAT.  He was saying that this stock had a trailing P/E of 7, a Debt to Equity 0.14;  a 17% discount  to Book Value Per Share… plus consistent dividends (regular and special).  Why then was there very little trade on the stock.

My answer for stocks like these would be that a stock does not move on its fundamentals alone.  It has to have strong adherents who choose to trade the stock between it cheap and expensive levels.  In the more developed markets, there are what are called market makers who follow stocks very closely keeping track of who hold big chunks of the issue.  They then try to work with these holders such that they trade the stock from different aspects of value appreciation and then try to further distribute to new investor base constantly so that a diverse view on the stock eventually develops.  Unfortunately, something like this would work when the absolute number of market players and investors are huge.

So while we are waiting for this market to get bigger, the way to make money on a consistent risk-reward based process is to weigh most of your trades on issues that would have an average daily turnover of Php 1 million for small ticket trades and Php 5 million for larger ticket trades.  This is why stocks like MEG and MPI trade very well; they have a large number of shares being traded and a wide base of shareholders.  They also keep the public always aware of what they are doing in order that there is always a reason to trade the stock no matter where the price is going.

A reader had asked me about SMDC as well.  It is one stock that has intermittent liquidity unlike its sisters SMPH and SM.  Having taken a second look and judging from the success of its property venture, it may just be a good speculative buy.  After all, the property story may be a worthwhile  speculative play anyway and SMDC may just improve its following with the influence of SMPH and SM.  It has had good value turnover since the beginning of the year.

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March 9, 2010 - Posted by | Financial markets in Asia

9 Comments »

  1. Hello Sir Gus,

    do you think there will be dilution in MPI? What news is this about their listing of additional shares?

    Comment by wren | March 9, 2010 | Reply

    • Wren,
      It is not yet clear whether they will be coming to the market with additional shares. Personally, I don’t think it is a good idea to have come a few months ago and then come back again. Fund managers will hate them.

      Comment by Gus Cosio | March 9, 2010 | Reply

  2. Hi Sir Gus,

    I’ve been holding on to AP for a few months now and managed to buy it at the PHP8.00 levels. It had a good run until today, where it supposedly peaked at 12.25 before closing a bit down. I tried selling at that level but the price closed 2 notches lower. Would it make sense for me to sell it at such “lower” level of 11.75, or you think that this stock still has some potential for growth?

    I’m trying to “moderate my greed” with this stock, but I consider myself to be in this position in the medium-term, together with PIP and RLC. Anyway, some analysts have said that AP is already overbought (also looking at the RSI level, it’s in the area of 70/80 already) and that the effects of the current power crisis have been factored in with the price already. What do you think sir?

    Hope to hear your thoughts here.

    Thanks!

    Comment by Finch | March 9, 2010 | Reply

    • Finch,
      AP may be at overbought levels already, but its underlying fundamentals are very strong and from what I learned yesterday, even if Magat goes dry, they will only lose 4% max of revenue. If you were to sell some AP, I would suggest that you do not sell all so that you can remain involved with the stock. Try to sell again at 12, tomorrow up to 50% of your position with a view of buying it back if it goes down to 10.75 or lower. AP can potentially go to 15, but there is also your own money management. PIP and RLC have some room to go I think.

      Comment by Gus Cosio | March 9, 2010 | Reply

      • Thank you very much Sir Gus.

        And yep, I’m still keen on holding my PIP and RLC. 🙂 It’s just that AP has been so exciting and proved to be an excellent provider of strong returns, at least since last year. Will try doing that suggestion of yours of not selling the entire AP holdings just yet. And thanks, too, for providing guidance on a possible Target Price.

        This blog of yours is a good tool for teaching new players in the market like myself. I appreciate your advice on this Sir.

        Thank you again.

        Comment by Finch | March 9, 2010

  3. Today index (march 9) reached 3107, do you think this will turn to profit taking. Another, im holding MPI and bought it at P2.95 and P3.0, by today it go down, do you think it will break the resistance of P3. Thank you.

    Comment by jm | March 9, 2010 | Reply

    • JM,
      Personally, I don’t think that MPI would break out yet. I think it could use another decline to give a chance for new buyers to take it to the next level which to my mind is only at 3.25. Nevertheless, if you have a 6 months time horizon, you should consider adding more MPI when it goes down to 2.75. You have to train yourself to manage your cash positions at certain price levels. If you’ll trade the market in the long haul, price declines should not bother you. What is important is that you have conviction that the stock is where you should be.

      Comment by Gus Cosio | March 9, 2010 | Reply

  4. Hi Sir Gus,

    Can you give some idea on the currect valuation on UIC as it relates to JGS? thanks

    Comment by alexis | March 9, 2010 | Reply

    • Alexis,
      I’m afraid I don’t have it in my finger tips. One of my analyst friends showed it to me but I hardly remember the figures. When I get it, I’ll post it.

      Comment by Gus Cosio | March 9, 2010 | Reply


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