Gus Cosio says so

Ideas on the Philippine Stock Market

Missing out?

9:45  Thursday  15 April 2010   Philippine Stock Exchange Index   3319.67 (a few minutes after opening)

It gets very difficult to stick to ones market convictions when the environment is screaming otherwise.  I suspected that the U.S. market would have started to enter a consolidation phase, but it has gone even stronger.   What has hurt my position is the fact that we are closely correlated to the movement of the major U.S. indices.   Absolutely all the U.S. indices are up except the utilities index and the exuberance of the American investor cannot seem to be dampened.  I guess if you read in the business headlines that companies such as UPS reporting earnings that have jumped 33% and J.P. Morgan raising their dividend bar due to sustained improvement in earnings, why should anyone not be encouraged.

On the domestic front, I keep hearing people talking about the fear of election failure, the judiciary being rigged, the Comelec doing some rigging on their own, voting computers possibly conking out, you name it, people are just assuming the worst on the political front.  Yet, investors continue to pour money into the more volatile (compared to the boring money market) stock market.  Actually, given low interest rates, I do not blame them.  My cautiousness led me to reduce my portfolio to 60%, but I could not in my right mind not be exposed to stocks in the Philippines.  As an asset class, stocks will be the best performer for 2010, and in spite of real or perceived pessimism, it seems to be so.

So, I think if investors have taken profits already, they should keep whatever they have left in their portfolios.  For those who would like to increase holdings in their portfolio, I would suggest sticking to the very strong stocks.  If there is one suggestion that I would like to make, it would be MBT.  At least two major global investment firms have pointed out that the Philippine financial sector is undervalued and that idea will likely entice fund managers to seek out headline bank stocks, and among the top 3, I think MBT is the cheapest.  It also is a large cap stock that shows a lot of promise because of reasonable price to book ratio and steady growth of return on equity.  If anything goes wrong in the election, MBT will likely hold its own because it is the only local bank with full banking operations in China through a wholly owned subsidiary.  Theoretically, their China operations could eventually approximate the size of the existing business by sheer size of the market in the middle kingdom.  Of course, the market share of MBT in the Philippines is also a lot more substantial than any of the top ten banks in this country.

Another stock that people should also keep an eye on is MER.  It was showing some weakness the past few days, but if this stock falls close to 170, I think it will be a good buy.  Electricity sales has been growing double-digit over the early months of 2010 and with the economy picking up, this growth should be sustained.  I also think that under the new management, both revenue and cost could be streamlined to produce a better bottom line.  furthermore, I think that because its franchise area produces 60% of the country’s GDP, a premium should be attached to that.

My ideas may sound boring in recent days, but what can I say.  There is just too many things to consider, I would not want to lose money just because I missed it.

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April 15, 2010 - Posted by | Financial markets in Asia

32 Comments »

  1. Hi sir Gus, People think & act differently at different times some buys stocks when there’s bad news, while others sell..and some are chasing the rally while others start unloading…. but the bottomline is PROFIT and not to lose MONEY so when a correction comes you can buy more at a discounted price….

    Comment by Leopil | April 15, 2010 | Reply

    • Leopil,
      we should never forget the bottom line. That is what business is all about. Without the bottom line, there will be no one left in the market.

      Comment by Gus Cosio | April 15, 2010 | Reply

  2. Hi Gus,

    I, too, am looking to buy MER if it goes close to 170. Another issue I like is ICT with their substantial international presence and with the recovery of the global markets, international trade will surely pick up. My buying price for ICT is as close to 25 as possible. As for MBT, I have always liked MBT. At 50.50 I’ll buy, more if it goes even lower.

    Today I had an important realization. I’ve been stressing out the past few days thinking where to put my money in the short term to make the most of the recent strength of the market. But just a few minutes ago, it hit me like a brick in the head. I am in the market for the long haul so if I am not able to buy a stock I like at the price I want, I should not feel a sense of loss if it goes up the next day. With my long term view of the market, my time will come.

    Just after I thought of that, I felt my stress levels go way down. I know Gus, that you’ve been telling us this but somehow it never really sank in. Until today.

    Thank you!

    Comment by richard | April 15, 2010 | Reply

    • Good insight, Richard.

      Comment by Gus Cosio | April 15, 2010 | Reply

  3. Hi Tito Gus, What is the Correlation of Dollar,Stock market,interest rate and inflation….is it true that a cheaper dollar means higher stock prices…..

    Comment by Tanya | April 15, 2010 | Reply

    • Tanya,
      I am not sure of the correlation exactly but here is my take on it.
      – If we expect the dollar to decline, then we do not want to own dollar assets that will yield significantly less then the percentage of decline. We will only invest in the assets which will rise faster than the currency move, and that is very difficult to predict.
      – If the peso is expected to be stronger, it follows that peso assets should be priced higher in dollar terms. An expectation of a strong peso should strengthen local stock prices.
      – High interest rates makes cost of holding stocks high, i.e., the future value of the stock discounted by interest rates will be lower if interest rates are high. It would be more attractive to own a bond unless dividend yields are higher.
      – Inflation theoretically increases future values of assets because the assets of the corporation are more expensive to maintain. Unfortunately, higher costs of production and higher final selling prices could lower sales, margins and bottom lines of companies.
      Why don’t you work it out?

      Comment by Gus Cosio | April 16, 2010 | Reply

  4. sir gus what will be the immediate and long term effect of the cross transaction of broker 323 of almost a billion shares of MPI done at 3pesos. thanks again sir and good health to you!!!

    Comment by migs-ron | April 15, 2010 | Reply

    • Migs,
      From what I hear, the foreign broker was able to redistribute the shares to a list of long term holders making the holdings of the shares more widely distributed. That is very good for the shares. This will make 3.00 a very strong support for MPI. Of course, it could go down with potential election jitters, but that would be a buying opportunity. Have a look at MBT as well. I’m sure you won’t regret it.

      Comment by Gus Cosio | April 15, 2010 | Reply

      • thanks sir Gus MBT has been in my radar for some time, i’m just timing my entry sir Gus, im thinking somewhere below 50 is a good buy for MBT. What sir to you would be a good entry for MBT? thanks and good health to you sir!!!

        Comment by migs-ron | April 15, 2010

  5. Good morning, Sir Gus.
    AP and AEV have been treading the upwards path for quite some time already. Do you think there is still some substantial room for an upswing in these stocks?

    Thanks.

    Comment by Finch | April 15, 2010 | Reply

    • Finch,
      I like both stocks very much, but it would not hurt to take some profits by selling half of your holdings. I’m certain that some kind of correction will be coming. A good correction will only make the stock even stronger.

      Comment by Gus Cosio | April 15, 2010 | Reply

      • thanks Gus.
        lined up for tomorrow’s selling already.

        Comment by Finch | April 15, 2010

  6. Market going down now maybe further on friday. Profit taking or Basilan problem?

    Comment by Kier | April 15, 2010 | Reply

    • Kier,
      It’s a bout time that we have some profit taking. That would provide good support for the next big market move.

      Comment by Gus Cosio | April 15, 2010 | Reply

  7. MPI traded at a low asking price of P2.95, but i got too greedy and posted at P2.9! When in fact i think P2.95 was already a bargain, we really need to control our greed. 😦

    Comment by JimBoy | April 15, 2010 | Reply

    • I don’t blame you, JimBoy. Normally, when the market is weak like this, you should really make your posting defensive. You did the right thing. I suspect that you may get it at 2.90 in a few days from now. Don’t be in a hurry. This market won’t run too far from us.

      Comment by Gus Cosio | April 15, 2010 | Reply

  8. PLDT going down.Gus, at what price is best to buy PLDT stock any range?

    Thanks!

    Comment by Kier | April 15, 2010 | Reply

    • Kier,
      My range for TEL is 2450 to 2700 which means that buying below 2500 is not bad. I think there is a chance for TEL to surge to 2700 in the next three months.

      Comment by Gus Cosio | April 16, 2010 | Reply

  9. Hi Gus,

    Today I bought some ALI and am intending to hold it for at least a couple of months. I am also considering buying either FGEN or PNB. I’m okay buying at the current price of FGEN but my hesitation is its inability to break past 11. For PNB, I’m looking at entering at around 30-28 range and intending to hold until after the merger is done. Of the two, which would you recommend?

    Comment by richard | April 15, 2010 | Reply

    • Good questions Richard 🙂 I’m targeting PNB too. Gus, when do you think the merger would take place this year or next year?
      Thanks!

      Comment by Kier | April 15, 2010 | Reply

      • Kier,
        I do not know the exact date of the PNB merger; I just know that it is targeted for the third quarter this year.

        Comment by Gus Cosio | April 16, 2010

    • Richard,
      I think that FGEN will have a shorter reward horizon with a smaller return while PNB would have a higher return but with a longer time horizon. For practical purposes then, I would buy FGEN should it go down some more. I would follow PNB and switch to PNB when it starts to move again. I think PNB might rest for a while around 30 or so.

      Comment by Gus Cosio | April 16, 2010 | Reply

      • I actually bought this already yesterday during run the run-off. I’m looking to sell around 10.75, maybe 11 if it reaches that again. My only two plays for this is either sell immediately with marginal profit or hold it for about a quarter or so. But most likely I’ll take my first option as there are other good stocks that yield better returns like MBT. But definitely I will try to make the most of the PNB-Allied merger.

        Thanks Gus

        Comment by richard | April 16, 2010

  10. Sir gus FGEN is down to 10.25, what is your estimate on the bottom price for this stock, i got it at 10.75 so im planning to average down. Thanks for your insights regarding MPI.

    Comment by JimBoy | April 15, 2010 | Reply

    • JimBoy,
      It’s tough to call a bottom. The better thing to do is to watch the price to observe whether a bottoming sign is forming. Because the main trend is up, you must watch the price at tighter intervals. When you see it holding at a price supported by volumes larger than previous period or bouncing up with very large volume, then you know that it has bottomed out.

      Comment by Gus Cosio | April 16, 2010 | Reply

  11. Hi sir Gus, Foreclosure rates surge in 5 years could this affect us markets in the future?

    Comment by Linda | April 15, 2010 | Reply

    • Linda,
      You’re talking about the U.S., I presume. Actually, this was not unexpected. this as actually the result of all squeezing out in the housing market. This number supports the view that the housing market in the U.S. is bottoming out.

      Comment by Gus Cosio | April 16, 2010 | Reply

  12. Hi sir Gus, Last week you wrote in your blog about Murphy’s Law that says “if anything can go wrong it probably will” and it could really hurt and hurt bad…… Pse may drop to below 3100 or even 3000 within 3 to 4 weeks……US MARKET dropped 125 pts last friday…..US future down more than 100 pts….your prediction about the market is very accurate…thanks for it…..Godbless….

    Comment by Miko | April 17, 2010 | Reply

  13. Hi Tito Gus , Your Market Forecast about the coming CORRECTION is very precise….I’ll start buying stocks after election or if p6 goes below 3k….tnxs sir gus……

    Comment by Jenna | April 17, 2010 | Reply

    • You flatter me too much, Jenna. sometimes, guys like me get lucky. Be sure to follow the market and your favorite indicators so that you too can formulate your own opinion and feel. That what should be important to you.

      Comment by Gus Cosio | April 17, 2010 | Reply

  14. Hi Sir Gus, Goldman Sach fraud case today reminds me of Microsoft anti-trust case .

    Comment by brian | April 17, 2010 | Reply

    • Brian,
      Actually, it is more similar to the Salomon Brothers case in the 1990’s. The result was the resignation of the top honchos of Salomon’s leading to the decline of the firm. It was eventually absorbed by Citigroup. Unfortunately today, there is no extremely strong financial firm that can do the absorbing.
      I hope Goldman’s can hurdle this. It would be tough for the market if they don’t because that is one big player out of the ball-game.

      Comment by Gus Cosio | April 19, 2010 | Reply


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