Gus Cosio says so

Ideas on the Philippine Stock Market

Investing in Safe Bets?

8:45am   Thursday   8 April  2010   Philippine Stock Exchange Index    3270.37  (+0.52%)

I would not be surprised if we saw a correction in the market today.  From the end of the first quarter, we have seen a 109 point rally in the index or roughly 3.4% in a matter of 3 trading days.  And if you look at a stocks like AC, DMC, SCC and PNB, these stocks have seen relentless moves in the past few trading days.  A healthy consolidation should be good for these stocks.  Likewise, a general consolidation of the market should encourage many investors to evaluate the political risk that faces the market in a few weeks.  I am not saying that investors are oblivious to the political activities in the country; I just think that there have been foreign funds that simply have to raise their Philippine weighting because of good reviews among articles and research notes being written about Philippine companies.

Anyway, I am a believer of the collective wisdom of the market place.  So there guys like me who would like to be more prudent as we approach the day of political reckoning.  Do not forget that there are also other diligent investors who are of the opinion that present prices have already discounted whatever negative factors surrounding the coming election.  I would not judge these investors as reckless because, who knows, they may be investing only a small percentage of their entire asset allocation and leaving a good amount out of the market until election results are revealed.  As far as market dynamics are concerned I will always be open minded.

It all boils down to what is cheap and worth taking a risk on.  In fact, what we should really be concerned about all the time are the earnings prospects of the companies that we invest in because life will go on in the country no matter what the outcome of the elections is.  Stock prices will simply adjust values in relation to the perception political stability by local and foreign fund managers, and that would be determined generally by time.  The thing is, we have seen so many political upheavals in this country and just like a cat that falls off the table, we manage to land on our feet.  While I am a proponent of prudent investing, that also requires me to make risk reward judgments all the time.  I think that is what separates real investors from pure punters or gamblers – the ability to make the call when the reward outweighs the risk.

So, between now and the period when the election results are known, I will have to be in a thinking mode which will allow me to perceive that risk-reward balance.  What are the safest bets today?  I think they are:  TEL, DMC, SCC, PNB, BPI and MBT.  These are stocks that are either very cheap (DMC, SCC, PNB) or relatively cheap (TEL, BPI,MBT) and have a lot of pent-up demand waiting in the wings.  I think commodity stocks like PX should also withstand any election related controversy.

Wall Street was down overnight, and I think people were simply taking profits.  That is not such a bad thing to do, is it?

Advertisements

April 8, 2010 - Posted by | Financial markets in Asia

28 Comments »

  1. Mr. Cosio thank you for your advice on stock investment, i would like to hear your views on CHIB, Chinabank, it looks like the p/e is quite low compared to other banking stocks, would you recommend or not that we invest in this stock, please share your views. thanks.

    Comment by mukesh telwani | April 8, 2010 | Reply

    • Hi Mukesh,
      CHIB is a very good bank and the stock price is cheap. However, CHIB is always cheap to the market and is not very responsive to movements in market sentiment because there are very few who trade the stock. In essence, you will be owning a very good company but your reward from owning the stock will not be much. You will be getting a 3% dividend yield at today’s price. Alternatively, even if you own an expensive stock like BPI or a fairly valued stock like MBT, you can enjoy similar dividend yield but you may be highly rewarded from price movements. It is also a lot easier to trade BPI and MBT compared to CHIB. It reall depends on how you want to be rewarded by the market.

      Comment by Gus Cosio | April 8, 2010 | Reply

  2. What makes SCC different from the other mining companies? I believe you previously mentioned that commodity prices may be going down, so it would be advisable to stay away from mining?

    Comment by Nicole | April 8, 2010 | Reply

    • Hi Nicole,
      SCC is a coal company that now owns a power company that would use up around 30% of its coal output.

      Comment by Gus Cosio | April 8, 2010 | Reply

      • Thanks! 🙂

        Comment by Nicole | April 10, 2010

  3. Hi Gus,

    In your list of safe bets, you did not mention any power stocks. Does this mean that the coming elections pose a higher risk for the industry? Also, you mentioned that DMC is very cheap, in your opinion, what is its real value? I want to buy more of this stock at around 15.5 to 15.75 but I feel like 16 might be pushing it already. With SCC, this looks very attractive indeed with the company more than doubling their net income for 2009 as compared to 2008.

    As always, thanks for your valuable comments!

    Comment by richard | April 8, 2010 | Reply

    • Hi Richard,
      I think Power stocks are also safe bets except, as a sector they have been pretty strong and have hogged limelight for a few months. I’d like to see power stocks go down a bit before buying them. DMC and SCC, on the other hand are very cheap in terms of NAV and earnings. On top of that, I feel that there is very little supply at these levels.

      Comment by Gus Cosio | April 8, 2010 | Reply

      • I agree, after seeing the closing quotation for DMC made me very optimistic about the stock. Aside from the 16 level, there’s barely any sellers of the stock in comparison to daily value turnover. Earlier I posted at 15.5 then tried again at 15.75 but I guess I was just a tad late. Oh well.

        Thanks again Gus!

        Comment by richard | April 8, 2010

  4. good day Mr. Cosio,
    i’m a newbie in the markets (been trading for 3 years but still consider myself a newbie). I just came across your insightful blog thru PSEtickertraders and i just want to send my appreciation and thanks for the service that you are doing. I still have to read through its archives but i already consider this is a fountain of wisdom coming from years of experience.

    I just hope you continue with this endeavour. Our very young market needs more people like you.

    Comment by RobertoBaltazar | April 8, 2010 | Reply

    • Roberto,
      I have been an advocate for capital market development in the Philippines for many years now. I hope my efforts bear fruit before i grow too old.

      Comment by Gus Cosio | April 8, 2010 | Reply

  5. Hi Gus
    Thank you for helping a lot of people make money on PNB. Should I still go in at P32.00? Thank you.

    Comment by Adrian | April 8, 2010 | Reply

    • Adrian,
      I would be patient and wait for a correction.

      Comment by Gus Cosio | April 8, 2010 | Reply

  6. Gus what will happen to this power stocks when the Bataan Nuclear Power Plant is approved for opperation? This plant could supply significant amount of power for the country, thanks for your insights!

    Comment by JimBoy | April 8, 2010 | Reply

    • Nothing much will happen, Jim. The power requirement in the country is growing faster than GDP. If we do not increase capacity next year, we will be experiencing power shortages again in 2012.

      Comment by Gus Cosio | April 8, 2010 | Reply

  7. Sir gus, dont you think GLO is pretty cheap, since at its current price it’s actually giving rougly 11% return through dividends anually? while TEL is at 8%. Thanks for your insights!

    Comment by KennyV | April 8, 2010 | Reply

    • Kenny,
      Yes GLO is cheap. What you should do with GLO is try to identify your range for the stock. In my opinion, it is 900 to 1050. Buy when it is closer to 900, sell when it is closer to 1050. If that happens 4 times in a year, even if you get only 50 points at every round trip, your yield on the stock would over 20% a year. That’s better than leaving your money in the bank. It will also be a lot more fun.

      Comment by Gus Cosio | April 11, 2010 | Reply

  8. Sir Gus, you have been a big help to us. Your blog plus your answers to the different questions posed to you served as a guide in our investing activities. May I know your view on PAX? I lighthened up on PAX early February at a big loss, thus increasing my average cost. I recently bought back at 2.18 to average down. Thank you.

    Comment by Nel | April 10, 2010 | Reply

    • Nel,
      i really have very shallow insight on PAX. I used to run a BPO company and it is a low margin high volume game. The current problem I see in BPO is the strong peso which will put a drag on earnings and possibly future growth. When PAX listed (back door), the US$ was around Php 55. Now it is only Php 45. To put it in Dollar terms, Php 1 was only 1.8 cents U.S. Today, it is 2.2 cents U.S.which means base cost has gone up 22.2%, not to mention that salaries are also up around 20% from then. This means that margins have been eroded by around 40%.

      Comment by Gus Cosio | April 11, 2010 | Reply

      • hi sir gus, your correct strong peso will hurt bpo’s ,ofw and also export companies.bes time to buy dollar or euro’s

        Comment by brian | April 11, 2010

      • Brian,
        I’m not sure that the US$ or the Euro are the places to be. The long term trend is to move away from these currencies. I think the more appropriate thing to do is to sell US$ whenever it is strong and buy strong non-dollar assets. The two strongest that come to mid are the Chinese reminbi and the Indian rupee, possibly the Indonesian rupiah. The peso will also continue to strengthen. Pasensya na lang ang mga exporters and BPOs.

        Comment by Gus Cosio | April 11, 2010

  9. sir gus,

    Just want to get your opinion on RCM? I think the cement industry is a laggard..

    Comment by jolly | April 11, 2010 | Reply

    • Hi Jolly,
      RCM is a very profitable cement company; unfortunately because the shares are not widely held, the stock is illiquid. The chances seeing an appreciation happens when there is a huge buyer which is rare because no market investor would like to hold illiquid shares. I’ve had CMT for a few months. I bught it because it was cheap. It had move a little but I’d have done better if I just bought back more AC.

      Comment by Gus Cosio | April 11, 2010 | Reply

  10. Hi Gus, would like to ask if FLI would be still a good buy at its current levels.

    Comment by son | April 12, 2010 | Reply

    • Hi Son,
      Welcome to the blog. I think FLi has had a good recovery and analysts are pitching it to got to 1.30 which is fair. I think that FLI is alright. It is the broad market that I am getting worried about.

      Comment by Gus Cosio | April 12, 2010 | Reply

  11. Hi Guys!

    Good week ahead.

    Just inquiry on EIBB it’s been suspended for months ! not once but i think twice 🙂 Even though I dont have substantial investment in this “dead stock”. I like to ask if a suspended stock can be traded off to online trader like in my case philstocks? What to do with a suspended stock? Does it show that this company management is having trouble and hocus pocus? can you shed lights on this?

    Thanks, Gus! you’re the best.

    PNB soar woot woot! Thanks!

    Comment by Kier | April 12, 2010 | Reply

    • Hi Kier,
      I really have no clue on EIBB. As you said, it is a dead stock so spending time on this stock will result in very little or no productivity. If you miss action on this stock, you don’t have to worry because chances are, only the insiders will benefit.
      As to PNB, perhaps you should consider taking profits. I think a correction is coming soon.

      Comment by Gus Cosio | April 12, 2010 | Reply

  12. Hi Gus,

    It seems to me that our recent run may have lost some steam already. I’m not saying that we might head south soon. Rather, I believe the market may correct this week given the very strong performances of most blue chips and second liners. This is probably a healthy logical move for our market since we cannot expect prices to just keep on climbing without much corrections. This is not to say that there will be select issues that will keep on going up, read SM, ALI, AC.

    Having said so, I’m currently looking to buy either SM or AC. Of these two, which would you favor more? Also, if you have other recommendations I would certainly love to hear it.

    Thanks as always.

    Comment by richard | April 12, 2010 | Reply

    • Hi richard,
      I agree with you that we should be seeing a correction. As for your query on AC and SM, in my view SM is the cheaper of the two and has been under-appreciated. In contrats, I thin AC has gone ahead of itself already.

      Comment by Gus Cosio | April 12, 2010 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: