Gus Cosio says so

Ideas on the Philippine Stock Market

Investing the farm

12noon  Monday  12 April 2010   Philippine Stock exchange Index  3294.83  (+1.19%)

The markets continue to be strong and I have no difficulty with that idea.  I think that earnings are likely to be at least within expectations for the first quarter of 2010.  In the U.S., earnings reports will start to influence the market strongly in the coming days.  I think, next week, a few of the large Dow component stocks will be reporting, and I do not discount that volatility of stock prices will increase as a result.  The reason why I find this important is because over the past many weeks, the Philippine market has been strongly correlated to the movement of the DJIA.

There are some signs that look convincing to me that the DJIA is due for some correction.  There have been a few distribution days (selling day with higher volume than prior day) logged over the past few weeks on the DIA which is the ETF on the DJIA.  The 20-day moving average of the DJIA is far steeper than 50-day moving average which  is not sustainable for long periods of time. I think the U.S. market may be losing some momentum.  If the Philippine market continues to be correlated, then a major correction of the DJIA will surely result in the same way here.

This week’s calendar is full of annual shareholders meetings and it may prove to be a distraction for investors.  At this point, I think most of the good news has been built into the stock prices.  I am afraid that what the market is not factoring in today is the risk inherent in elections in this country.  Of course, risk expectations result into both negative or positive outcome.  Because I think that investors could temporarily rate our market lower due to uncertainty, I favor the negative out come to outweigh the positive as we draw closer to election day.

For that reason, I would take profits on stocks like PNB, particularly if I were overweighted on the stock.  I think it is showing signs of being overbought and I sense a resistance at 33.50 for PNB.   I would sell  maybe 50% to 60% of my holdings and wait for a correction to below 30 to reinstate to 80% and 28 for 100%.  I would also recommend for holders of AC, MBT and AGI to reduce holdings and bank in some profits.

If there are any stocks that I would be willing to hold through the volatility of elections, these would be DMC, PIP, AEV, AP, FGEN and EDC.  The other week, a reader had asked if I was not constructive on power generations stocks.  Actually, I am very positive on them.  I know for a fact that demand by both consumer and industrial users is going to exceed existing capacity in less than two years if generating capacity is not expanded.  That fact tells me that power generating companies will enjoy very good earnings and cash flow.  Having said that, I would also keep an eye on MER which is the distributor to the largest franchise area in the country.  We are already seeing signs that power consumption in their franchise area is increasing rapidly.

Incidentally, the cement companies HLCM and CMT have shown some signs of life.  These are low liquidity stocks so they will likely move according to whether or not fund managers start to buy the story of higher earnings.  It is a long shot but I think it might be workable, but do not bet the farm.

Anyway, with these thoughts, I hope investors are able to adjust portfolios to face the risk of correction in the world markets and the local elections.  Having said that, investors should not ignore stocks that, in this process of correction, will be sold to ridiculously cheap levels because there should be bargain hunting that follows such moves.

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April 12, 2010 - Posted by | Financial markets in Asia

24 Comments »

  1. Hi Sir Gus, I sold all my PNB today @33/sh and tomorrow my RCBC…I beleive that Risk is very high right now and will continue to rise until May Pres.election..Market may move sideway next month..I’ll start buying again after May election maybe in june or july….Thank u very much for PNB….

    Comment by Cate | April 12, 2010 | Reply

    • Good for you Cate. My suggestion is that you should not wait unitl June. Rather, check the market regularly, but keep a good head on your shoulders and filter the information.

      Comment by Gus Cosio | April 12, 2010 | Reply

  2. Hi Tito Gus, I’m a newbie just started trading last december i lost money in feb(30%). but made a good paper profit(50%) from Blue chips stocks that goes up rapidly for the last 2 months.Sir gus is it time to sell or hold?

    Comment by Joey | April 12, 2010 | Reply

    • Hi Joey,
      with the index already a shade below 3300, I think that we have at the most 3% to go before we see a major correction. That should time us to a week or so before the May 10 election. In my case, today, I reduced my portfolio by 35%. I am only 65% invested now and I am looking to reduce it further to 50%.

      Comment by Gus Cosio | April 12, 2010 | Reply

  3. Hi sir Gus i sold my PNB at P32.50 today, i was able to get it at 27, so i decided to sell it and take profits. The only stock in my portflio right now is MEG, i got it at 1.28, its now at 1.4.. do you think selling it at this price is a good idea? tnx and more power!

    Comment by JimBoy | April 12, 2010 | Reply

    • Yes Jim, I would be looking to sell MEG as well. The only ones worth holding are the power and possibly mining stocks since they are more dependent on economic needs of the recovery. Otherwise, I choose to be defensive at today’s environment.

      Comment by Gus Cosio | April 12, 2010 | Reply

  4. Hi Sir Gus! What do you think of BEL? Btw, sold my PNB shares @ 32.5 and waiting to retrace to 30 or so. 🙂 thanks a lot!

    Comment by chinchin | April 12, 2010 | Reply

    • Hi Chinchin,
      BEL had an earlier play with APC but I fail to see any further attraction in BEL. Ask your broker if there is a story. I would rather be in SMDC which is an affiliate of BEL which is not speculative in nature. If you want a good speculative play, try CMT which is a cement company with good fundamentals. The reason I say it is speculative is because its price action is very sporadic. If you are able to catch its momentum, you can make some money.

      Comment by Gus Cosio | April 13, 2010 | Reply

  5. Hi sir Gus! What can you say on FPH? Thank you sir and more power.

    Comment by jm | April 12, 2010 | Reply

    • JM,
      A lot of analysts consider FPH a cheap stock which is trading at a comfortable discount to its NAV. After its pricey sale of Meralco to MVP’s group, it now sits on a pile of cash and has reduced debt significantly. Its earnings flow from its 2 largest subsidiaries – FGEN plus EDC – should shore up its cash position even further.

      Comment by Gus Cosio | April 13, 2010 | Reply

      • Thank you sir Gus, Im planning to sell all my PNB today (get it @ P27.00) and transfer my funds to FPH.

        Comment by jm | April 13, 2010

  6. hi gus, what is your take on PIP and NI? 🙂

    Comment by james | April 12, 2010 | Reply

    • James,
      I like PIP. It has very strong financials and it is securing its strong market in non-carbonated drinks which is where growth in this industry will come from.
      I have no clue on NI, you probably have better info than I.

      Comment by Gus Cosio | April 13, 2010 | Reply

  7. Goodevening sir gus, What can you say about VLL. Politics aside, I think this is a very good stock to buy. consolidating 2 to 2.16. fiscal year 2009 earning is reportedly above analyst expectations. Still cheap compared with meg, fli… Thanks for your comment.

    Comment by Richie | April 12, 2010 | Reply

    • Richie,
      Politics aside, I will not touch VLL.

      Comment by Gus Cosio | April 13, 2010 | Reply

  8. Hi Sir Gus!

    what do you think of Manila North Harbor Rally? is that company connected with MPI? hehehe

    Thanks

    Comment by wren | April 12, 2010 | Reply

    • Frankly wren, I have no clue. Sorry.

      Comment by Gus Cosio | April 13, 2010 | Reply

  9. Good Morning, Sir Gus.

    I am still waiting for PNB to go below 30.00, as advised. Thank you for that. I have 40K pesos. And I am a newbie at trading (I think I’ve also mentioned that already in my previous comment).

    Should I just wait for PNB to go below 30.00 or can I buy other stocks like MPI or PIP while waiting for PNB? Thank you po, Sir Gus.

    Comment by Nikki Lim | April 13, 2010 | Reply

    • Nikki,
      I would suggest some patience here. Do not be too quick to the draw. Remember, you’re in the market for the long haul so choose your entry points like the good shopper women really are. Wait for some bargains, then chose.

      Comment by Gus Cosio | April 13, 2010 | Reply

  10. sir gus, may i know the reason for not touching vll? Analyst briefing on 2009 fiscal earnings will be on friday 2:30 pm. If my source is correct, VLL is expected to earn 2.8- 3B, assuming it’s the lower end, it is still .33c EPS. very undervalued. I would like to hear your side sir. Thanks.

    Comment by richie lim | April 13, 2010 | Reply

    • Richie,
      There are stocks that fund managers do not like for arbitrary reasons. VLL is a stock which I do not trust, but that is just me. I need a more compelling reason to look at it than just earnings report. I have no qualms if you like the stock. I just do not have good feelings about it.

      Comment by Gus Cosio | April 13, 2010 | Reply

  11. hi sir gus,

    thank you so much on pnb was able to get in at 24…i sold my pnb at 32.5..i transferred to fph..

    Comment by lai | April 13, 2010 | Reply

    • Well Lai,
      I hope you continue to follow PNB because the story is still alive. After some sideways move, PNB will still move higher by year end. FPH is also a very good stock.

      Comment by Gus Cosio | April 13, 2010 | Reply

      • yes, sir gus..i will wait for PNB to correct, 28 – 30 is a buy for me…thank you so much sir..

        Comment by lai | April 13, 2010


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