Gus Cosio says so

Ideas on the Philippine Stock Market

Voting with your money?

10:40am    Monday   26 April 2010       Philippine Stock Exchange Index  3293.30    (up 48.85 points at mid session)

There were some interesting observable trends that can be seen in the periods approaching elections in 1992 and 2004.  Both were presidential elections.  The reason that the 1998 elections could not be considered significant was because it happened immediately after the Asian crisis and the Philippine market was in turmoil.  What we could see in both elections was that from one month into the elections, the market rallied.  In other words, during the peak of election activity, the market seems to adopt a very positive tone.  When you look at mid-term elections of 1995, 2001 and 2007, you also have situations of market strength as people prepare to go to the polls.  Of course what happens after is a different story depending on the underlying fundamentals of the time.  In 2001, for instance, the market became strong as a knee jerk reaction from the change of government, but everything deteriorated soon after elections because the rest of the world went into an economic slowdown.

Anyway, the thoughts remain quite strong in my mind that previous elections had been very profitable for stocks in general.  What raised my anxiety in this year’s election exercise is the fact that this is the first automated elections in the country and the process itself rather than the outcome which raises my anxiety.  Judging from many news articles in print and on broadcast, thousands of people out there seem to share my anxiety.

With all these thoughts in the back of many people’s minds, why then are stock prices so strong?  For one, the trend in the major equities markets remain strong.  Furthermore,  earnings and economic fundamentals in the U.S. economy support the trend.  Locally, earnings and economic fundamentals remain strong as well, so there seems to be reason in the optimism of stock investors.  In terms of price action, my instinct tells me that while individual investors have approached this rally will a lot of caution, institutional investors have moved with strong conviction in adding to their portfolios.  What you can see is small volume selling and large volume buying up.  (Buying up means the trade is initiated with buyers taking the offered volume in the market.)  The thin is, most of these buying had been made in the sectors that have strong analyst recommendations.

Notice that MBT surged about the same time at least two analysts  from foreign firms as well as a positive note on the Philippine financial sector.  MBT was recommended to be the strongest in the sector.  Of course, we saw an incredible performance of PNB, but that story was motivated by price recovery and an M&A story.  The sector has remained firm with even SECB, UBP and even the odd RCB stayed with the upward momentum.

One very strong move was seen in AC which apparently has some story of buying voting rights over some preferred shares.  I do not really understand what the broker was talking about so if any one out there has the right information, please feel free to post it here.  My problem is I do not like to buy something that I do not understand.

So this market will be moving ahead until a few days after the Filipinos cast their vote.  The shares that I will be following are MBT, PNB, MER, PIP, CMT, DMC, ICT, AP, AEV, SCC, EDC, FGEN, RLC, JGS, SMDC, SM, TEL and URC.  I think not much could go wrong with these stocks.  The message I want to impart is that investors should keep a portion of their funds in the market depending on their level of comfort on the elections.

Have a good week ahead.

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April 26, 2010 - Posted by | Financial markets in Asia

41 Comments »

  1. Hi Sir Gus,

    Do you think that there will be a downtrend of stock prices after election? Especially the official procamation of winners are immediately available due to technical reasons or whatever reasons? Is that the reason why you set a side 20% or more cash?

    Comment by Alex | April 26, 2010 | Reply

    • Alex,
      The way it is going right now, I think there will be further buying until elections and even after. Then, I foresee a correction of the surge in buying that would come prior to election day. I do not see a change in trend, just a consolidation of the move above 3300, which could go below 3200. At the end pf 2010, I believe that the market will be above 3500.

      Comment by Gus Cosio | April 26, 2010 | Reply

      • Thanks Sir Gus and Cindy for your insights. I got MPI, FGEN, MEG, EDC, GLO. Which one do you think have more potential to reach a better price by year end?

        Comment by Alex | April 26, 2010

  2. Hi Tito Gus, @Alex PSE might Rally to 3600 if there will be a peaceful and orderly election and a smooth transfer of power to the next Pres….My stocks right now are GLO,MWC,PIP,SMPH and AC…..

    Comment by Cindy | April 26, 2010 | Reply

    • Cindy,
      I think you’re doing well with your stock but perhaps you would consider selling GLO and buying DMC or AP. I noticed that you don’t have a power stock in your portfolio.

      Comment by Gus Cosio | April 26, 2010 | Reply

  3. Hi Sir Gus, Today is the start of a Big Long Rally…..Go GO GO ….PSE 4000…….

    Comment by Rene | April 26, 2010 | Reply

    • Rene,
      I am probably as bullish as you are. Historically, however, the Philippine markets get quite bumpy because it is a small market and money flows are very important aside from fundamentals.

      Comment by Gus Cosio | April 26, 2010 | Reply

  4. Hi sir Gus, I think nobody can stop this Bull market not even the coming election..Rene is right were going to PSE 4000….

    Comment by robin | April 26, 2010 | Reply

    • Robin,
      Be sure to be in the right stocks as you go for the ride.

      Comment by Gus Cosio | April 26, 2010 | Reply

  5. I’m currently holding AP @ 11, ACR @ 1, DGTL @ 1.32 and ELI @ 0.41.
    Does my portfolio have a good chance of earning 50% by year’s end?

    Comment by mark | April 26, 2010 | Reply

    • Mark,
      I think Ap can go as high as 20 by year end.ACR is very speculative. If you have made money on DGTL, it would be time to sell. It is probably better to be in JGS instead of DGTL. ELI is a dog and I do not see any improvement. Better to be in its sisters – AGI or MEG.

      Comment by Gus Cosio | April 27, 2010 | Reply

  6. Hello Tito Gus. What can you say about FLI? I have lots of it at 1.02? Is it time to hold or time to cut my losses? Thanks in advance and more power to you Tito Gus!

    Comment by Miley | April 26, 2010 | Reply

    • Miley,
      I think FLI has gathered some momentum. It might just go by about 20% from today’s levels just to narrow its discount to NAV.

      Comment by Gus Cosio | April 27, 2010 | Reply

  7. Sir Gus Im very sure with my stocks Pnb Bought 24.5 still holding,PIP @ 2.38 and Globe @ 950…. PIP & GLo my dividend stock(Long-term hold)….

    Comment by robin | April 26, 2010 | Reply

    • Good for you robin.
      In my opinion, I’d rather hold TEL rather than GLO over the long term. PIP should be seeing 3.50 soon and I’m keeping my fingers crossed.

      Comment by Gus Cosio | April 27, 2010 | Reply

  8. Sir Gus,

    Rear yesterday a Business world newpaper with article on JGS saying PE is at 17 based on price of P10.Do you have idea how was this computed? The PSE website shows 2009 PE at P10 price is 7.93?

    Thank you for the continuing guide.

    Comment by alex | April 27, 2010 | Reply

    • Alex,
      The PE figure on PSE site is based on their last earnings disclosure annualized. I do not think that it is a trailing PE. Different analysts will have different PE expectations on a stock. You should look at these as guidance rather than facts cast in stone.

      Comment by Gus Cosio | April 27, 2010 | Reply

  9. Good Day Sir Gus!

    what do you think of JFC? It has a coming dividend of 1.43pesos per share, do you think it will go up a few days?

    Comment by wren | April 27, 2010 | Reply

    • Wren,
      JFC is actually a stock that you buy and hold rather than trade. The best thing to do with JFC is buy it on dips then just hold on for a few years. It tends to outperform manyother stocks in 3 to 5 year horizons. It is a very steady stock.

      Comment by Gus Cosio | April 27, 2010 | Reply

  10. Sir Gus, i wonder why FGEN is still nailed at 10, when almost all of the other stocks are moving up, what could be the reason? And how would this affect the future price? thanks 🙂

    Comment by KennyV | April 27, 2010 | Reply

    • Be patient Kenny. I am a buyer of FGEN at these levels.

      Comment by Gus Cosio | April 27, 2010 | Reply

  11. HI Sir Gus, My stock broker/analyst friend told me that most PSE stocks are right now expensive and also warned me not to buy AEV and SMDC these 2 stocks are overbought and he advice to wait for a correction to enter the market…

    Comment by boy | April 27, 2010 | Reply

    • Boy,
      Your broker is probably hesitant about chasing the market for these stocks. I hope you have some positions in your portfolio just in case the market moves higher.

      Comment by Gus Cosio | April 27, 2010 | Reply

      • Hi Gus,
        Just a quick reply, I am a big fan of the AP and AEV. They remain strong and still looks like its going up. However, the idea of a failed elections and all those midnight appointments by GMA are kinda spooking me. So I have sold some of my positions of AP and AEV to secure profits and have cash just in case. Though I want to reacquire them as I see potential growth. My question is, what price do you think is a good re-entry? I managed to sell my AP @ 14.75 and AEV @ 16.25. Will it be possible to acquire AP @ 13.50 and AEV @ 14.75 – 15 in the coming weeks? Thanks!

        Comment by raymund | April 27, 2010

  12. Hi Sir Gus, what do you think of SPH? It touched its 52-week low of 2.60 and it seems like a good buy.

    Comment by Dez | April 27, 2010 | Reply

    • Dez,
      I like SPH, but I must admit that I am very disappointed with its performance. You’re probably right that it could be a good buy considering that it is in its 52-week low. I think this is close to rock bottom for the stock.

      Comment by Gus Cosio | April 27, 2010 | Reply

  13. Hi Sir Gus,

    Just want to know your opinion for PNX?

    Comment by Jojo | April 27, 2010 | Reply

    • Jojo,
      PNX is a third liner. It is a progressive company but you’ll have to research it a bit more before betting the barn. Perhaps 10% of your portfolio max if you really like the stock. Otherwise, you’ll probably do better with DMC which also has an energy component.

      Comment by Gus Cosio | April 27, 2010 | Reply

  14. Hi Sir Gus!

    I’m a little bit surprised to see MER on your list. Isn’t MER overvalued? Are you looking at it as a Trading Buy?

    With that said, do you prefer MER over FPH?

    thanks sir Gus!

    Comment by Jack B. Nimble | April 27, 2010 | Reply

    • Jack,
      I like MER because of its earnings momentum. I expect its top line to grow more than 50% this year. It is expensive but it has good reason to be. The value of its franchise area- being the NCR+ regions 3 & 4 -are gems that nobody else has, I repeat, nobody else has. I would tag at least 2PE points to that and another 2PE points to earnings growth. I estimate forward PE to be around 18X. I do not see that as expensive for a company that provides utility to the region that produces 60% of the country’s GDP.
      FPH is cheap, but it has always been cheap. It should have its spurts in prices and those occasions are profitable for the astute trader.

      Comment by Gus Cosio | April 27, 2010 | Reply

      • thanks, Sir Gus! great read!

        Comment by Jack B. Nimble | April 27, 2010

  15. Hi Sir Gus,
    I noticed that some active secondliners like MPI hasnt been in the discussion loop. For the last 3 sessions, huge volumes have been traded. Any thoughts on MPI? Re- FGEN, do you think they have the right fundamentals for an uptrend?

    Comment by Mark | April 27, 2010 | Reply

    • Mark,
      I like MPI, but I think it has limited upside in this current rally.

      Comment by Gus Cosio | April 27, 2010 | Reply

  16. Sir Gus may I ask what can you say on SECB? I am planning to sell my FPH and transfer to other stock. Thank you sir.

    Comment by jaayem | April 27, 2010 | Reply

    • Juvy,
      I think SECB is a good stock. In general, I think Bank stocks are still cheap. Have a look at MBT, PNB, UBP and BPI as well.

      Comment by Gus Cosio | April 27, 2010 | Reply

  17. Hi sir Gus, Are we in a Stock Market Boom or a Bubble? Right now im 20% stocks 80% cash…..waiting for this little BUBBLe to burst then i’ll enter the market….Gobless…..

    Comment by clive | April 27, 2010 | Reply

    • Clive, What makes you think that this is a bubble. Prices of assets in the Philippines are pretty reasonable compared to our neighbors – China, HongKong, Taiwan and Singapore. The banking sector has not fueled any unusual demand for assets. It is just that domestic and foreign investors are realizing the value of Philippine stocks.

      Comment by Gus Cosio | April 27, 2010 | Reply

  18. Hi Tito Gus, Euro is going down against major currencies for almost 2 years because of PIGS DEBT problem could this led to a double dip in EUROPE or a Spread of DEBT Contagion to other countries like Portugal.Sterling is going down for almost 2 yrs also…

    Comment by mitch | April 27, 2010 | Reply

    • Mitch,
      If you compare The Euro to the Asian currencies, it has indeed depreciated a lot more. The reason for this is the long term capital flows out of Europe into Asia. That is also an indication of demand for assets in Asia, including the Philippines.

      Comment by Gus Cosio | April 27, 2010 | Reply

  19. Hi Sir Gus,

    What stock will have the highest increase in this rally? If i remember correctly in your previous articles you mentioned AP should be worth P15, now that it’s ~15, dont you think it has a little chance going up?

    Comment by JohnTheMan | April 27, 2010 | Reply

    • You’re the man, John.
      I haven’t looked up which is the best performer in this rally although I think AC, AEV and AP are good candidates. As to AP, I am still bullish on the stock. I bought some AP at 13.75, so personally, I think it may exceed 15. I would like to advise you to be more prospective in this rally. While I do not try to call the tops of prices, I always ask myself at every level of the market whether it is time to buy or sell. Right now, odds are in favor of the buy side.

      Comment by Gus Cosio | April 27, 2010 | Reply


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