Gus Cosio says so

Ideas on the Philippine Stock Market

Look at the bright side

3:55am  Tuesday   20 April 2010   Philippine Stock Exchange Index  3147.50  (-1.76)

Although it may be too soon to draw conclusions, I think that we have decoupled from our correlation with the DJIA which we had followed for most of 2010.  I think it is about time that investors considered that elections could possibly affect how everybody else views asset prices.  I continue to be defensive about this market.  Fortunately, I was able to lighten up a few days back and I have room to act on opportunities arising from this sell off.

While many investors and traders would be shaken by a five-day losing streak, a lot really depends on cash positions of people in the market.  I reckon that there has been sufficient selling to see a bit of cash back in traders’ hands.  Similarly, we are seeing some stock coming down to oversold levels.  One stock that fits the bill is MER.  It has been on an 8 day sell down that a rebound might be in the making.  I think that it is also a very safe stock to punt judging from my latest electricity bill which is up by almost 30%.  While not all of the bill remains with Meralco, it nevertheless raises their cash levels when they collect it.  I also remember that the in the first 2 months of 2010, Meralco sales were up 22% and 14% respectively. I think it could come back from oversold levels.

Another is MPI which is not only MER related, it also controls Maynilad which is a water utility.  controlling both electricity and water should command some kind of a premium price, so it is a safe stock to own as well.  I may be rising from its sell-off soon.

DMC is similarly a major holder of Maynilad though a minority to MPI.  We think that in comparison to how MPI values Maynilad, DMC has it cheaper in its books reflecting some kind of undervaluation in DMC.  DMC also has power generation through SCC and is an active infrastructure, construction and housing player.  It is a safe stock to own in times like these.  I also think it is oversold.

The final stock in my oversold list is SMDC.  It is not a very cheap stock but its growth prospects are very good.  With all its existing projects coming to completion and new ones being hatched, it is also a safe stock to own seeing that it is bound to rise from these sell-off levels.

Of course, I am keeping an eye out for PNB having taken profits last week.  It traded at 29 today, but I think it can come down to 28 at which price it is dirt cheap again.

I suggest that investors do not ignore MBT which was the strongest stock in the market today.  There is good reason for MBT’s strength.  It is poised to reach long-term return on equity of 15% based on the speech given by its president to a conference of its branch managers last February.

There are 13 trading days to election day and uncertainty abounds in the political scene.  I do not recommend that investors abandon caution.  nevertheless, the companies mentioned here have seen the test of many a crises.  Life will go on even if elections create some disruption in the country’s economic life.  I am an optimist, so in the midst of my prudence, I still look at the bright side.

By the way, with Wall Street bouncing back in the wider S&P 500 index as well as the surge in NADAQ due to the constructive view on technology stocks, I do not discount a shift in sentiment locally to the positive side.  Apple shares soared 5.27% on earnings rising by 90% and sales of iPods increasing by 130% for theyear.  That is even very good for the Philippine export sector since electronic components make up more than 50% of our exports.

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April 20, 2010 - Posted by | Financial markets in Asia

13 Comments »

  1. Hello Sir Gus,

    I mentioned to you before that I purchased a few shares of EEI @ 3.3… Its trading around that level @ this moment. Would you recommend that I still hold on to these shares?

    Also when you mentioned that DMC has some sort of undervaluation, what exactly does that mean? Thanks

    Norman

    Comment by Norman Go | April 20, 2010 | Reply

    • Norman,
      Based on my estimation, the implied valuation of Maynilad in DMC is around 8X earnings. In MPI it is valued at 14X earnings which implies that the real value of Maynilad is not yet being reflected in DMC. Similarly, they own the controlling stake in SCC which is now trading at 70. I think, it is valued at a much lower price in their books. Finally, the contribution of the infrastructure, housing and construction businesses are being ignored by the market.

      Comment by Gus Cosio | April 21, 2010 | Reply

      • Thanks for the insight sir gus..

        Comment by Norman Go | April 21, 2010

  2. Sir Gus, what can you say about AGI?
    It seemed to have held strongly at 5.50 earlier but it gave in to 5.40 upon closing.

    Thanks.

    Comment by Finch | April 20, 2010 | Reply

    • Finch,
      I think AGI will eventually trade above 6 on pure growth of earnings. Since I think the longer trend is positive, I would try to find good levels to accumulate this stock.

      Comment by Gus Cosio | April 21, 2010 | Reply

  3. Hi Tito Gus, Last week MPI redistribute millions of shares @ 3/share.. Today it’s BDO @ 41.5 to raise $250 million ..Sir Gus what will be the Effect of this redistribution of shares to newbies like me…

    Comment by Linda | April 20, 2010 | Reply

    • Hey Linda,
      Redistribution is always, I repeat always good for the market. The more a share is widely held, the stronger the stocks become. It means that the stock gets influenced by a plurality of views. It improves both flow and liquidity as more analysts and professional investors follow the stock.

      Comment by Gus Cosio | April 21, 2010 | Reply

  4. Sir Gus, if it’s ok to ask, for a market veteran/investor like you, who among the presidentiables will get your vote?

    Comment by JimBoy | April 20, 2010 | Reply

    • And why?:)

      Comment by JimBoy | April 20, 2010 | Reply

    • JimBoy,
      I will probably vote for the Noynoy/Mar tandem because I think they could bring to us a pragmatic government. It could also bring a 12 year continuity of programs and policy since they will probably be a good team together. If you look at the other teams, only the Gordon/Bayani tandem offers the same alternative. Unfortunately, I don’t think Dick and Bayani have a ghost of a chance. So I’ll place my bet on the better odds, after all, they are competent people with good odds of reliability.

      Comment by Gus Cosio | April 21, 2010 | Reply

  5. Sir Gus, dont you think buying SMPH is better than SMDC? Because with SMPH, you get to own SMDC plus the SM malls. Im not sure on this though, thanks for your insights tia!

    Comment by KennyV | April 20, 2010 | Reply

    • Kenny,
      I really do not know which of SMPH or SMDC is the better company. I just observe that SMDC may have a better performance in price in the coming weeks.

      Comment by Gus Cosio | April 21, 2010 | Reply

  6. Hi Sir Gus,

    What is your analysis of EDC? Would it be good to buy this stock now?

    Comment by Jojo | May 13, 2010 | Reply


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