Gus Cosio says so

Ideas on the Philippine Stock Market

Nobody said the ride would be smooth

10:05 am  Tuesday 25 May 2010  Philippine Stock Exchange Index  3154.22 (down 37 points)

With all this volatility in the global markets, it is inevitable that the local market would absorb a lot of this volatility in spite of positive macroeconomic fundamentals locally.  Of the country’s total exports, 43.3% go to East Asian Countries and 16.8% go to the U.S.  That leaves less than 40% that goes to India, the Middle East,  Europe and the rest of the world, which really tells me that Europe will not have so huge a bearing on our economy.  While a good number of OFWs are Europe based, many are deployed in the health and home care service industries.

What is directly affecting our stock market is the sentiment in the U.S. which has become fearful of the prospect that more sovereign debt crises might still arise from Europe.  The thing about credit markets is that when something like Greece turn up, creditors start reviewing all their positions.  The result is a huge contraction of bank credit to all borrowers.  I think that is what is going on.  It is the same situation prior to when Lehman collapsed in 2008.  Banks were already contracting their balance sheets.  They are doing it again today, and that is why governments are taking the slack.  It is almost a repeat of the Paulson initiative in the last days of the Bush administration, the time when they put together the TARP to keep liquidity flowing into the commercial paper market so that companies can still access finance.

The developed markets are looking bearish.  The question in my mind is whether this is a full-blown trend or simply a correction of the major trend starting from March 2009.  Even if it is just a correction, it could take the major markets much lower dragging smaller markets like ours down.  What is in store for us is likely a market that would be ranging between the recent highs and the supports that we saw sometime in February this year.  Here are some of my thoughts.

MPI is trading at the lower ind of its trading range.  It could ease to 2.70, but that does not violate the range.  We can view it within the wider range of 2.65 to 3.25.  MER could be working its narrower range of 160 to 175 compared to the wide range of 150 to 188.  AP could retrace to 15.25 given the weak sentiment plus the compulsion of investors to bank-in profits.  AGI may be seeing a trading support at 5 while its prospects to trade at 6 remains alive.

DMC could theoretically trade at 12.75 and gather strong support there.  I am pretty biased for this stock because the stories behind DMC are quite convincing – Semirara, Calaca, Maynilad, and all the infrastructure and land development projects.

EDC has been slipping although a support is showing at 4.60.  Geothermal is even going to be a bigger story with all the environmental disasters going on.  FGEN looks to be strong at 10.50 although 10 may also be reachable.

I’m not trying to promote MBT, but 52 is a screaming buy for me.  I can’t ignore the earnings strength that financials are bound to develop and MBT is the significant player in this market.  Since I like the financial sector, PNB to my mind has strong support at 28.  Of course, UBP should not experience too much a tumble; should it break 40, i think 37 should be very strong.

This dip should give followers of the URC, RLC and JGS trio a chance to get in at cheap levels.  These stocks have been quite resilient and have remained firm because of strong company fundamentals which continue to look good.

Over-all, I would be bold enough to say that this is simply a serious consolidation that we are going through.  It always happens when you least expect it.  For investors who are getting jittery, I would recommend lightening up by selling some positions that are not too deep in loss because it would be good to be holding some cash.  I can still see this market going up 20% by year’s end.  Nobody said riding the market would be a smooth ride, but it is when we learn how to face situations as these that we can get to be seasoned investors.

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May 25, 2010 - Posted by | Financial markets in Asia

42 Comments »

  1. Thanks so much for this Sir gus! Very insightful! 🙂

    Comment by wren | May 25, 2010 | Reply

  2. Thanks Sir. There has been alot of talks about double dip recession. How likely do you think? With the currently movement of indices, is there a likelyhood that things will fall close to March’09 levels?
    Regards, Mark

    Comment by mark anthony | May 25, 2010 | Reply

    • Mark, I doubt very much if stocks will seek the March ’09 levels.

      Comment by Gus Cosio | May 25, 2010 | Reply

  3. Sir Gus,

    With all this panic and market jittering, What advice can you give to investors who are 100% in the market?

    Comment by JohnTheMan | May 25, 2010 | Reply

    • John,
      You should make sure that you are happy with the stocks in your portfolio. My personal portfolio has swung from profit to loss and I only have 8% left in cash. While I have little scope to maneuver, all the stocks I own are stocks that I like – MBT, DMC, AP, PNB, PX, SPH and TEL. I am also accumulating APC as a special situation. I am happy with my portfolio except for TEL which I did not expect to drop so much.

      Comment by Gus Cosio | May 25, 2010 | Reply

      • Hi Gus, like u, my profits has evaporated and im now down 5%. Good thing I was able to lighten up a bit before massacre happen.Closed my positions in GLO and TEL two weeks ago… I am still holding DMC, AP, MBT, PNB, SCC, GMA7, MPI and EDC.. Im, overweight on SCC, PNB and GMA7, and still holding 40% cash… What’s the story on APC by the way? and given the current pricing, what’s the most attractive stock to you right now?
        Thanks for the insights as always..

        Comment by mike | May 25, 2010

  4. Hi sir Gus, Is it true that Europe is now in a Double dip Recession and could last till 2011…Can Germany bail out another country like Spain,Portugal and Italy if it goes like Greece?Thanks and Godbless

    Comment by Willy | May 25, 2010 | Reply

    • Willy,
      Europe is not yet in a recession but it is being threatened by one. If things get out of hand, I do not think Germany will bail them out. I think that the common currency should be abandoned.

      Comment by Gus Cosio | May 25, 2010 | Reply

  5. sir gus,

    thanks this great post it keeps me calmer every trading but i continue to tighten my position and keeping some cash. I heard in the US that the sell off happened last week has put wall street is in correction mode but still not in bear mode. what about our market? thanks.

    your truly,
    tanders

    Comment by tanders | May 25, 2010 | Reply

    • Tanders,
      Given the selling panic that we saw today, I would not be as worried anymore. The weak hands have been squeezed out. Judging from the big drop of TEL, I surmise that there was a bit of foreign selling. I think people will be running scared which is good. This means that the long term rally is still around. We are merely consolidating our gains.

      Comment by Gus Cosio | May 25, 2010 | Reply

  6. Sir Gus,

    Would you also recommend buying MEG considering their 1:4 stock offering? and what would be its support price?

    thanks

    Comment by Jojo | May 25, 2010 | Reply

    • Jojo,
      in the near term, MEG is purely a trading stock. You should, therefore, be counter intuitive on MEG, buying it when market is weak and selling when the strength builds up.

      Comment by Gus Cosio | May 25, 2010 | Reply

    • Jojo can you explain further this 1:4 stock offering? When is this? I was looking at the recent company disclosures and I could not find it. Thanks

      Comment by Nel | May 26, 2010 | Reply

  7. Hi Sir Gus,

    Happy birthday! I enjoy reading your blog. Though I still make my decisions based on my comfort level, your words are reassuring during tough times and a voice of reason during moments of irrational market exuberance. Thanks!

    Comment by Mal | May 25, 2010 | Reply

    • That’s exactly what you should do. I am here just to provide some sanity to those who need ideas to reference to. I do not pretend to know the future. I simply share the hard facts of the market.

      Comment by Gus Cosio | May 25, 2010 | Reply

  8. Sir Gus,

    What’s the effect of MVP becoming CEO of Meralco?

    Thanks.

    Comment by Mal | May 25, 2010 | Reply

    • Not much, I think.

      Comment by Gus Cosio | May 25, 2010 | Reply

  9. Sir Gus, I noticed that you do not have any FGEN and EDC. What do you think of these stocks. I am currently about 82% invested and 18% cash, with a 2.9% down from my Dec 31, 2009 level. I am holding MAB, MPI, LOTO, ICT, MEG, FGEN, AP, EDC, and PNB. Please comment also on my other stocks. Just recently sold PAX at a big loss (6 digits) and SMDC at 8% loss. Thank you in advance.

    Comment by Nel | May 25, 2010 | Reply

    • Nel,
      I like both EDC and FGEN. I just ran out of investible cash. I think EDC should rebound soon, while I consider FGEN a long-term buy.
      I have no insight on PAX, but I would reconsider picking up SMDC at prices that you’re comfortable with. I think your other stocks are okay.

      Comment by Gus Cosio | May 25, 2010 | Reply

  10. Sir Gus,
    just a suggestion of an article, how about insights of your trading style.

    Comment by Simple | May 25, 2010 | Reply

    • simple,
      It will take a bit of organizing, but I’ll see what I can do.

      Comment by Gus Cosio | May 26, 2010 | Reply

      • Thanks!

        Comment by andrew | May 26, 2010

  11. Sir Gus,

    One thing I noticed in times when markets are falling, is that no matter how stock prices fall, when the company fundamental is intact, it will bounce by itself provided you have the time and have not realized the loss by selling and trying to time the market and come back. I made those losses before in FPH and Mer. Selling at 16.75 and 60 I think.

    So to my fellow small investors, our funds hardly touch the market. We are young and if you do not need the funds, yoo understnd the companies you buy into and are comfortable with the valuations, I mean they are not with PE of 20, even 14, then relax.

    3, 6, 12 months from now remember what I just mentioned.

    Stay focused.

    Comment by alex | May 25, 2010 | Reply

    • You right wait and see until next month if Djia goes down below 8000 its time to buy….

      Comment by Jim | May 25, 2010 | Reply

    • Whew. Thanks, Alex. 🙂

      Comment by Nicole | May 26, 2010 | Reply

  12. sir Gus what do you think about APC? is it a good stock?

    Comment by Son | May 25, 2010 | Reply

    • Buy the DIPS, sell the Rally…..

      Comment by tommyboy | May 25, 2010 | Reply

    • Son,
      The geothermal story on APC looks serious to me. An associate of mine had lunch with the president of APC and the talks with Chevron for the geothermal property of APC looks to be proceeding well. I must warn you, however, that at this point, the stock is quite speculative so you must be aware that you could lose some money.

      Comment by Gus Cosio | May 26, 2010 | Reply

  13. Sir Gus,

    Is this becoming more than just a correction? There seems to be no end in sight in this Europe Debt Crisis…I know we have to look things at a big picture by focusing on the emerging market’s growth story..but bear just keeps on pounding…should we bail already?

    Comment by James T. | May 26, 2010 | Reply

    • James,
      The stock market is not for the faint of heart.

      Comment by Gus Cosio | May 26, 2010 | Reply

  14. Here is an intriguing look at Europe Debt Crisis that is going on right now. It pays to be informed I guess…though this is really getting ugly…

    http://www.businessinsider.com/12-charts-on-the-crisis-in-european-banking-2010-5#banco-santander-spain-1

    http://www.businessinsider.com/

    Comment by James T. | May 26, 2010 | Reply

  15. Oversold Stocks Pepsi,Mpi,Dmci,RLC,Pnb,Tel,MBt and GLo…

    Comment by Carlo | May 26, 2010 | Reply

    • Carlo,

      I wouldnt touch GLO 🙂

      Comment by JohnTheMan | June 10, 2010 | Reply

      • That’s a good idea.

        Comment by Gus Cosio | June 11, 2010

  16. Hi Sir Gus,

    Why do companies buy back some of its shares? And what is the implication of the price they bought the shares, on the future price of the stock?

    Thanks!

    Comment by Tons | May 26, 2010 | Reply

    • Tons,
      Companies buy back share because they think that the price is too low. Also, it improves earnings per share for exisint holders of the stock. In essence, a share buy back aims to reward existing investors.

      Comment by Gus Cosio | May 26, 2010 | Reply

  17. Hold on to your portfolio people, at least today and tomorrow’s tradings will be good in my analysis. The momentum from the strong rally in DOW (from -3.2% to a marginal -.23% at closing) is carried in DOW futures (now up by 0.7%)! I expect a at least a 1% gain for PSE today.

    Comment by Chris M. | May 26, 2010 | Reply

  18. sir gus, i sold everything yesterday at a loss, only to find out that dow recovered almost all of it’s loss, is this a dead cat bounce or it’s the shorters covering already? what support for the PSE are u looking at right now? what PSE level do u suggest we go back to stocks for those who liquidated their holdings, thanks and good health to you sir!!!

    Comment by migs-ron | May 26, 2010 | Reply

  19. Sir Gus,

    What’s the story on PX? It’s one of your new recomendations 🙂 Would like to know your thougths on this stock. TIA!

    With AGI, where does the majority of the profits come from? MEG or McDonalds?

    Comment by JohnTheMan | June 10, 2010 | Reply

    • John,
      PX is trading 12X PE. We think it will make 3.9 billion this year plus their production costs are way below where metal prices are now. it has also acquired new proven reserves.
      As to AGI, the windfall will be coming from the operations of the hotel and casino in Newport City across NAIA 3.

      Comment by Gus Cosio | June 11, 2010 | Reply

  20. hello, can you give me something on where to invest my money.. any idea guys…

    Comment by abner | June 16, 2010 | Reply

    • Abner,
      A lot of prople jump into the stock market head first without gauging how deep, shallow or how strong the current is. If you have no idea yet of where to go, may I suggest that you first invest in a mutual fund. You will get to feel how the market works and you will be exposed to portfolio philosophies and strategies. If you are a new comer, I would caution to avoid the normal pitfalls that people take like relying on broker tips and advice from people talking up their stock positions. You can go to http://www.save-and-learn.com as part of this fund management company’s advocacy is to help people learn about proper investing.

      Comment by Gus Cosio | June 16, 2010 | Reply


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