Gus Cosio says so

Ideas on the Philippine Stock Market

A time under heaven

8:20 pm   Wednesday   5 May 2010    Philippine Stock Exchange Index    3176.85  (-3.46%)

There have been too many bloodbaths over this past six trading days.  Three of them were seen in Wall Street and only one real massacre in Manila, and that we saw today, Wednesday.  We were fortunate that we were closed on Monday because the DJIA fell 170 the Friday before and the recovery in New York on Monday allowed us to digest market conditions with a bit of level headedness.  Unfortunately, the 225 point decline of the DJIA Tuesday compounded by the bad news of ubiquitous failures of the automated voting machines was news that was just to difficult to bear.

As I was driving home yesterday evening, I was listening to the news that all the PCOS machine tests failed in the local candidates tally.  What really got me very skeptical was the news that they were going to change 72,000 flash memory cards.  In my mind, I started to question how the Comelec would be able to all that in the remaining number of days.  That idea started turning me to a short-term bear because of the elections.  Later on in the evening, I had a look at the U.S. indices and saw a 255 point drop in the DJIA on account of the debt situation in Europe notably coming from Greece and Spain.  When I woke up at 6am, I checked the New York closes and it was as bad as when I checked before the mid-day close, down 225 points.  I was sure that Philippine stocks would not be able to withstand the series of horrific news.

Days where we see over three percent declines are few and far between.  What raises my anxiety is that I do not expect any good news to lift the market vigorously over the next few days.  I think investors would be running for cover and would rather hold cash than shares simply because the probability for losses has just gone higher compared to a week ago.  While earnings should underpin prices eventually, I think that for the time being, buyers would be waiting for cheaper prices.  Rightly so because volatility comes with a cost and because price swings have just become wider, I think the right thing to do is to demand discounts before letting go of cash.  It’s like betting at poker.  If you are holding a pair of face cards, you could still stay in the game.  But, if someone starts to show a higher pair, you don’t throw more money in.  You hold on to your cash until a stronger hand comes along.  In the investment game, you should not mind buying at higher prices for as long as you are confident that you are buying the direction of the market.

For those that are fully invested, for as long as the stocks you hold are strong stocks, you do not need to worry.  I think that as soon as the election jitters blow over, life will go on and stocks will resume its course.  My only advice is that you keep some cash handy for bottom fishing.  If you are running a little scared at this point, do not be anxious of cutting losses on positions where the losses are small.  In time like these, cash is always king.

Just to share some positive news, EDC won the bid for the 150 megawatt Bacon-Manito geothermal plants.  when the dust settles, EDC will probably resume its move.  MPI report a 91% rise in core income to Php 1.1 billion in 1Q2010.  MPI’s P/E remains demanding at 22X earnings guidance.  Given this information, I think it might be slightly more profitable to switch from MPI into MER.

I had mentioned MBT as a stock to watch particularly due to the private placement done at 48.  This allowed MBT to raise an additional Php 5 billion in new capital.  What is significant in the move is that it adds to its paid-up capital when it is already the bank with the highest paid-up capital in the industry.  I think that elections notwithstanding, this year could be a banner year for MBT and the stock could possibly hit 70 in the next 6 to 12 months.

Anyway, this market looks vulnerable at this point so I would advise investors to be defensive for the time being.  There’s a time to every season under heaven, and it is the time to be circumspect about the market.

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May 5, 2010 - Posted by | Financial markets in Asia

15 Comments »

  1. Hi Sir Gus,

    What price effects should one anticipate with the addition of MPI, CHIB, ABS to and the removal of DMC, FGEN, and PSE from the PSE index?

    Thanks.

    Comment by Mal | May 5, 2010 | Reply

    • Mal,
      At this point, it will be hard to tell because the market is reacting to extraneous factors other than stock prices. The knee jerk reaction would be to see a premium being imputed in the prices of the new index constituents.

      Comment by Gus Cosio | May 6, 2010 | Reply

  2. Sir gus,

    Do you think AP will become cheaper than 14.50 in the next 2 days?

    I took profits last week and just waiting to buy back. What do you think is a good entry price?

    Regarding DMC, did it’s removal from the index the reason why it dropped 10.45% today? (large drop compared with other stocks)

    Thank you very much for your guidance.

    Comment by Jek | May 5, 2010 | Reply

    • Jek,
      AP will continue to be a strong stock for as long as the anticipated earnings from the power plants that it is putting on stream strengthen its earnings growth. as for DMC, I think it was more of prfit taking rather than removal from the index that caused the decline. Remember, DMC came from 9 and went to as high as 17. There are a lot of profits to take on the stock.

      Comment by Gus Cosio | May 6, 2010 | Reply

  3. Hi Sir Gus, PSE buzz is Hyping GSMI…..They are setting a TRAP…

    Comment by Miko | May 6, 2010 | Reply

    • Miko,
      I said it before and I’ll say it again, do not trade a stock simply because it is being hyped. It is the fundamental value of the stock that matters.

      Comment by Gus Cosio | May 6, 2010 | Reply

  4. Hi Sir Gus,

    MPI’s core earnings at this point comes from water (Maynilad, shared with DMC), tollways (MPTC, shared with DMC), and power (MER, shared with SMC). Thus, it seems to make sense to either go with DMC or MER with the current earning sources in mind. It just seems that the growth from these sectors would not be huge compared with the prospective boom in business from port operations (currently not shared with DMC). Short term DMC seems to be the better vehicle, but isn’t MPI a better long term vehicle because of North Harbor?

    I look forward to your take on this.

    Comment by Mal | May 6, 2010 | Reply

    • Mal,
      I like both stocks although at this point in time, I am holding MER in place of MPI. I am also holding DMC because I believe that it is undervalued at current prices.

      Comment by Gus Cosio | May 6, 2010 | Reply

  5. Sir Gus,

    I am one of the guys who bought FGEN at 10.75, now its trading at 9.70, among my stocks in my portfolio this one is the most dissapointing, and now it was removed from the index, should i sell it now and admit that i was wrong with this stock?

    Comment by JohnTheMan | May 6, 2010 | Reply

    • Hey John,
      I still like FGEN and I think even if it is not in the index, it will continue to have good following. I do not think you were wrong in buying FGEN. It was just your timing that was a bit off. But, hey, nobody really gets the bottom or the tops.

      Comment by Gus Cosio | May 6, 2010 | Reply

      • Sir so the best move would be for me to average down if i the have extra cash. But rather than buy FGEN at lower price, dont you think getting DMC or AP would be better?

        Comment by JohnTheMan | May 6, 2010

  6. Hi Gus,

    Reading your blog inspires me to see a silver lining during dark times like these, especially when I’m about 60% invested. Thank you for always keeping it positive!

    Anyway, you mentioned earlier that PNB is a stock to watch and getting it at 30 is a deal. Between PNB and MBT, I would just like to know, in your opinion, which of the two is the safer stock to hold for about 6 months or so. Thanks!

    Comment by MJ | May 6, 2010 | Reply

    • MJ,
      I like them both, but I think MBT will be the first to move up. My suggestion is to track both stocks because you can switch between MBT and PNB and keeo making money just rotating between these two.

      Comment by Gus Cosio | May 6, 2010 | Reply

  7. Reading your blog inspires me to see a silver lining during dark times like these, especially when I’m about 60% invested. Thank you for always keeping it positive!

    Anyway, you mentioned earlier that PNB is a stock to watch and getting it at 30 is a deal. Between PNB and MBT, I would just like to know, in your opinion, which of the two is the safer stock to hold for about 6 months or so. Thanks!

    Comment by MJ | May 6, 2010 | Reply

  8. Sir so the best move for me would be to average down if i the have extra cash. But rather than buy FGEN at lower price, dont you think getting DMC or AP would be better?

    Comment by JohnTheMan | May 6, 2010 | Reply


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