Gus Cosio says so

Ideas on the Philippine Stock Market

How does one advocate patience?

7:00    Wednesday  10 March 2010   Philippine Stock Exchange Index  3107.35  (+0.40%)  Yesterday’s close

There is talk once more of the Ayala group getting involved in the power sector.  If you recall, there was the same talk sometime in 4Q09 about Ayala buying a portion of FGEN.  Today, it looks that talk is on again and the scuttlebutt is that the entry of the group into power will go through an FGEN subsidiary which holds the EDC shares.  This was the reason for the strong showing of both stocks today.  Incidentally, AC has been quite active over the past few days and it had an analyst briefing on Monday the 8th.

If there is a lesson to be learned here, it is that investors should always be mindful of stocks that have strong fundamentals and are possible targets for M&A activity.  Power is a continuing story that is still playing things out and will likely take a few more years.  Based on energy analysts’ forecasts, the demand that the country is facing in 2012 may not yet be met by existing capacity.  This means the necessity of continued developments in the power generating sector.  That is why AP, FGEN, EDC and DMC should not be ignored.  When their capacities are all running, the level of revenues will be sustained at sharply higher levels which is now attracting the Ayala group as it attracted the San Miguel group in 2009.

There had been some questions about MPI and its value at 2.90 to 3.00; where do we think this stock is going over the near term?  I think that it is not going anywhere, yet.  I like the stock but my buy level is 2.70 to 2.75 and I do not believe that buyers are yet willing to trade this stock beyond 3.00 in the next few weeks.  There are fears of new shares coming to the market, although I don’t think they’ll do that so soon after their share placement in 4Q09.  That will be a formula for vindictiveness from investors who participated in the last one.  MPI has enough muscle to raise cheap debt at this point, so why flood the market with shares.

As to the over-all mood in the market, I happen to believe that we are close to the top of the range which is the 3100/3130 area.  I think TEL is due for an ex-dividend adjustment which could take the index down 40 points.  The large index stocks are looking fatigued as well such that most of the action is being seen in second-liners like JGS.  While the international markets continue to gain, I am still wary of an election related sell-off.  I hate to sound like a broken record but how else can one advocate for patience.

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March 10, 2010 - Posted by | Financial markets in Asia

12 Comments »

  1. sir what can you say on CPM? Thank you.

    Comment by jm | March 10, 2010 | Reply

    • JM,
      If you follow technical analysis, that is probably what you need for this stock.

      Comment by Gus Cosio | March 10, 2010 | Reply

  2. Hi Gus,

    I remember from your post last friday or early monday morning that AP might get battered this week. Yesterday it went up quite big on huge volume. Today it opened strong but ended the day flat, on relatively high volume as well. What’s your take on this stock in the short term?

    Thanks!

    Comment by richard | March 10, 2010 | Reply

    • Richard,
      I thought that AP would get hurt by the lack of water in Magat. I learned later that this wa only 4% of total revenue maximum. Apparently, their Pagbilao thermal plant is more than compensating beyond the loss on Magat. Analysts place AP as a buy with a potential of 15. That is why the stock is so strong.

      Comment by Gus Cosio | March 10, 2010 | Reply

  3. Sir,

    What’s your opinion about AEV?

    Comment by Norlan | March 10, 2010 | Reply

    • Norlan,
      I think AEV will go the way of AP. I like both stocks.

      Comment by Gus Cosio | March 11, 2010 | Reply

  4. Hi gus!

    You think at the levels (10.25-11.00) now FGEN is still a good buy? I think traders like rumors and this tends to push the price up until there is final news. Thanks!

    Comment by Raymund | March 10, 2010 | Reply

    • Raymund,
      My buy and sell decision goes like this:
      1. Do I like the stock? yes? then buy. no? don’t even bother.
      2. Do I like the market? yes? then Buy. no? then wait.
      3. Is the stock overbought? Yes? then wait. No? then buy
      Personally, I do not think prices will run away from us at this point. There will be a chance to buy the dips.

      Comment by Gus Cosio | March 11, 2010 | Reply

  5. Sir gus! what is meant by your line: “I am still wary of an election related sell-off”? tnx gus 😀

    Comment by JimBoy | March 11, 2010 | Reply

    • Jim,
      I think that in a few weeks, some investors will turn jittery about the coming elections and reduce holdings in their portfolio. I expect some institutional investors to sell on profit taking.

      Comment by Gus Cosio | March 11, 2010 | Reply

  6. which means that there is going to be a drop in prices on or before the election since a lot of investors are going to sell? Law of supply and demand. is my analogy right?hehe correct me if im wrong sir gus 🙂

    Comment by JimBoy | March 12, 2010 | Reply

    • I am not saying that there will be a drop before elections because there are still a lot of buyers in the sideline. What I am saying is that if there will be a lot of investors selling, then it will be a more appropriate time to increase positions.
      Yes, it is the always the law of supply and demand.

      Comment by Gus Cosio | March 13, 2010 | Reply


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