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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