Gus Cosio says so

Ideas on the Philippine Stock Market

Investing for the end of the world?

9:10  Tuesday  13 April 2010    Philippine Stock Exchange Index  –  3294.83 ( pre-opening)

It looks to me that in the U.S., investors are quite up-beat about forthcoming corporate quarterly results.  The DJIA was up again today, but it appears to either be holding back or some investors would rather take profits on strength.  The thing is that having tightened their belts over the last two years, U.S. households are now experiencing an increase in domestic savings, something that they have not seen in years. The U.S. had actually seen domestic savings on steady decline since the 1980’s, and this improved savings position of the economy is a new factor to contend with.  According to a research item I read last night, cash flows into investment grade ETFs have been growing by an average of over $20 billion a month over the last year.  I haven’t seen figures on equity ETFs but I suspect a similar pace of increase.

So with more investable funds available compounded by a low interest rate environment, it is not unusual that money flow into the market is really sustaining the strength in stocks in the U.S.  Similarly, the Philippines has been seeing its savings rate increasing, and unlike the  U.S., this increase in domestic savings has been increasing since 2004.  This is why in spite of the fact that this country has not been experiencing too much foreign direct investments (FDI), the Philippines has managed to construct or rehabilitate new power plants, telco facilities, roads and other infrastructure.  On top of that, you still have that huge hoard of cash sitting in the vaults of the BSP coming from financial investors in the form of special deposit accounts (SDA).  My theory is that the same fundamental structure that has developed in the U.S. has been developing in this country since 2004 and if you compare dollar to dollar, the PSEi has outperformed the S&P500 since 2005.

Nevertheless, I still believe that for safety of principal, it would be good for investors to take profits on some of their best performing stocks.  However, for those who want to keep some exposure to the market, you can scrounge around for stocks that are good but have been sold down in spite of the strength of the index.  Some of these are resource/commodity stocks like PX and LC.  Then there are the resource related cement companies such as HLCM and CMT which are not very liquid but have fundamentally strong financial conditions.

I continue to like DMC and SCC because there just doesn’t to be enough of these stocks which makes the risk of a huge sell down difficult to see.  Of course, when we see a good correction, we should be prepared to reinstate positions and I would not ignore MBT and even PNB at slightly lower levels.   In short, we may have an election sell-off in the making, but I would not think that this was the end of the world.

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April 13, 2010 - Posted by | Financial markets in Asia

31 Comments »

  1. Guys,

    at selling price for PNB before election we can sell? and what’s your take on after election on PNB price, will it be back at P20/share?

    Ty

    Comment by kier | April 13, 2010 | Reply

  2. Kier,
    I don’t think PNB will go down to 20 after elections. I think the lowest it could go is 28, and that is if we are lucky. Have a look at SPH; I’m seeing some activity in the stock. It will be declaring cash divs about 2 months from now.

    Comment by Gus Cosio | April 13, 2010 | Reply

  3. Sir Gus,
    If correction comes, like today, how long does it takes???
    weeks?? months???

    thanx

    Comment by norman | April 13, 2010 | Reply

  4. Hi sir Gus, Read your Post yesterday about taking profits and i immediately sold all my PNB yesterday(40%profit)in 6 weeks..Thanks for your honest to goodness advice…More Power and God bless…

    Comment by Cindy | April 13, 2010 | Reply

    • Hey Cindy, I’m happy for you. Remember to be prudent in money management. A long term investor is one who has a long term commitment in following the market. It does not mean you have to be stuck with stocks you can’t sell.

      Comment by Gus Cosio | April 13, 2010 | Reply

      • I will remember this sir gus:

        A long term investor is one who has a long term commitment in following the market. It does not mean you have to be stuck with stocks you can’t sell.

        Thanks for words of wisdom like this 🙂

        Comment by Jek | April 13, 2010

  5. Norman,
    nobody knows how long a correction last. If you observe the market regularly, you’ll find out for yourself.

    Comment by Gus Cosio | April 13, 2010 | Reply

  6. Sir Gus, i need your advice on my management,
    when my stocks goes up i don’t sell, and when it goes down, i do sell. which makes my portfolio negative.
    Thanks much for your advice

    Comment by norman | April 13, 2010 | Reply

    • Norman,
      The reason you behave that way is that you are too hasty in coming into the market and equally as hasty getting. You probably do not trust your stock selection. A good investor will first choose a good stock before he enters the market. If the stock is that good then you will have no problem buying more when it goes down because you can own a good stock at a cheaper price. You must also develop indicators that will give you confidence when you enter the market. If you can’t develop this kind of judgement, you will always find yourself trading arbitrarily.

      Comment by Gus Cosio | April 13, 2010 | Reply

  7. Hi sir Gus, I think Pnb will not go back to 20 or below 25/sh after election but it will move sideways 30-35/sh.. pnb is overbought for the past 5 weeks…Last year it climb from 13/sh to 23/sh in just 1 month(apr-may09) after that it moves 20-25 for the next 9 months(may09-feb10)….

    Comment by clive | April 13, 2010 | Reply

    • Actually Clive, I agree with you. I suspect that PNB will range at this level (30 – 33) for the next few months while it waits for the final merger with Allied.

      Comment by Gus Cosio | April 13, 2010 | Reply

  8. Hi Gus,

    Today I sold my positions in BPC and some AP. Sold BPC @ 3.45 because there are just too many sellers at 3.5 and 3.55, I’ll probably buy after it breaks out. As for AP, I just locked in some gains but I want to reenter at 13.5 if it goes there, hopefully tomorrow. I also tried to sell DMC at 16.25 but that price might be unattainable in the very near future so I might sell at 16 instead but if it goes to 15, even 14.74 I’ll definitely buy more.

    Anyway, right now I only have 30% of my portfolio invested, in AP and DMC. Aside from these 2, what other stocks would you recommend to buy?

    Comment by richard | April 13, 2010 | Reply

    • Richard,
      you’re doing fine. The stocks in my list other than AP and DMC are PX,PIP,CMT,SPH,MBT,PNB,AGI and TEL. But I’m not in a hurry to get back into the market.

      Comment by Gus Cosio | April 13, 2010 | Reply

  9. Sir gus, thanks alot for your wisdom, i sold my MEG and PNB at, 10% and 20% gain respectively in just around 2-3 weeks.. Not bad at all! 😀 i decided to buy FGEN, and GLO at 10.75 and 950. I have positive outlook in this stocks. and when PNB goes down around 28-30. I will be a ready buyer, I think im slowly learning how to do this stock trading. And you sir is my biggest influence. God bless and More power! Your insights regarding FGEN and GLO would be much appreciated.

    Comment by JimBoy | April 13, 2010 | Reply

    • JimBoy,
      FGEN is a cheap stock even at these levels although I am cautious until a consolidation kicks in which is my signal to buy. For GLO, I do not see this breaking out of its present range which is 900 to 1050. So good to buy close to 900, but be sure to sell when it gets close to 1050.

      Comment by Gus Cosio | April 13, 2010 | Reply

  10. sir gus, lately MPI has been hovering from 3-3.2, i been stuck with this stock since early last year, currently im still on the negative side, any advice on this, i do intend to hold on to it till the end of the year… any advice? thanks and good health to you sir!!!

    Comment by migs-ron | April 13, 2010 | Reply

    • Ron, You’ve held the stock this long, so waiting a little more should be no problem. MPI is a fundamentally good stock. Very soon, it will start to enjoy the eanrings and cash flows from Meralco and Maynilad plus other infrastructure investments. You can sit on the position until you relly need the money or could put it to better use.

      Comment by Gus Cosio | April 13, 2010 | Reply

  11. Hi Sir gus, You mentioned about sph this morning i bought 30k shares last dec. @ 3.40/sh and still holding today.I dont want to cut loss because i also lost money in MPi last year. I hope Sph will go up before giving dividends in june or july.

    Comment by boy | April 13, 2010 | Reply

    • Hi Boy,
      We are in the same boat. I also bought SPH last December. I decided to hold on because I thought it would hold at 3.00. Unfortunately it went as low as 2.60 which I thought was a bottom for the stock. Personally, I think the stock will find its range at 3.00 to 3.25.

      Comment by Gus Cosio | April 14, 2010 | Reply

  12. Hello Sir Gus,

    I would like to ask your opinion on EEI(purchased at 3.3) and SMDC(purchased at 5.8). Any sort of information or advice on these stocks would be greatly appreciated. I’d just like to say I’ve religiously followed your blog for quite some time now and it has brought me more than my share of blessings…

    Norman Go

    Comment by Norman Go | April 13, 2010 | Reply

    • Norman,
      EEI has very strong earnings. The reason it moves very slowly because it is not a popular stock which the market does not fully appreciate. I think it has room to go, possibly 4.00, but it could take some time.
      On SMDC, you have a good entry price, so don’t be in a hurry to sell. If SMDC dips to 6.00, I suggest you buy some more because I think this stock should go to 7.00.

      Comment by Gus Cosio | April 14, 2010 | Reply

      • I appreciate the comments sir gus. I also purchased some PNB when it was @23 pesos and sold it off the moment it hit 33.5 the other day. I’m happy that what you believed was the resistance was similar to mine. I’d like to thank you again for the great blog. Again, you’ve given me more than my share of blessings. Thanks

        Comment by Norman Go | April 14, 2010

  13. Hi Gus,

    Our investments are in mutual funds that have not earned since 2007 and are just recovering today. We are thinking of pulling out of the mutual funds and invest in stocks. May we ask your opinion about this? Thanks.

    Comment by Bobby | April 13, 2010 | Reply

    • Bobby,
      First of all, not all mutual funds are created equal. Some mutual funds perform better than others. I own some Save & Learn Equity Funds (website: http://www.save-and-learn.com.ph) where I add a fixed regularly every month whether the market is up or down. It is called cost averaging. If you look at how this fund has performed, even if you invested at the peak of stock prices in 2007, you would be breaking even already. In my case, because I was investing regularly every month, my average cost is below the market. Cost averaging forces you to buy specially when prices are low; that is why I consider this a good strategy for an equity mutual fund.

      Comment by Gus Cosio | April 14, 2010 | Reply

  14. Sir Gus,

    Would you know if Rockwell land is directly owned by BPC or indirectly though FPH, or does BPC own some directly and some indirectly through FPH?

    All of the MER shares sold to MPI were directly under FPH right?

    I’m trying to make sense of the sudden spike in income of BPC and I’m not sure if it is based on recurring income or one time gains.

    Thanks!

    Comment by Warren | April 13, 2010 | Reply

    • Regarding the surge in BPC’s net profits, Warren, it was mainly due to a one-time gain from the sale of a substantial stake in Meralco.

      Regards.

      Comment by Jet | April 14, 2010 | Reply

      • Thanks Jet. Would you know if Rockwell is still under FPH or if it has been transferred to BPC?

        I heard some negative things about it.

        Thanks.

        Comment by Warren | April 14, 2010

      • Hi Warren,
        I think Rockwell is under FPH and FPH is mostly held by BPC.

        Comment by Gus Cosio | April 14, 2010

    • Warren,
      FPH retained a very small minority, I’m not sure how much. As for BPC, it is a holding company so its earnings are their share in the operating companies that it owns. Personally, for a holding company, more important than earnings is the net asset value. If the NAV is much higher than market price then there is money to be made, hopefully.

      Comment by Gus Cosio | April 14, 2010 | Reply

  15. hi sir gus, what’s your take on URC?

    Comment by lai | April 14, 2010 | Reply

    • hi lai,
      I like URC. It’s a stock that I would buy should the market come off.

      Comment by Gus Cosio | April 14, 2010 | Reply


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