Gus Cosio says so

Ideas on the Philippine Stock Market

Blood and rain

9:30  Wednesday  26 may 2010 Philippine Stock Exchange Index  3115.34 (up 12 points at the open)

Bloodbaths have become common place over the last two weeks.  Ever since the big downward blip in New York which saw the DJIA drop a thousand points in one day.  Of course, it ended that infamous day with “only” a 348 point drop. What it has done, nevertheless,  is that it has set the mood for the market to question the long rally that had been going on from March 2009.  Of course the rally had its stumbling blocks when Dubai went into default and the first sign of the PIGS showed up in January this year.  Nevertheless, the market overcame those hurdles to take the DJIA to a high of 11,258 in late April.  Furthermore, as regulators investigate the “blip” on the 6th of May, people are realizing that it was not a blip after all;  it was more of a real sell-off which had recovered on its own.  Given the surrounding debt crisis which hovers around the markets today, I tend to believe that May 6 in New York was a major profit taking move by the behemoth portfolios trading in the dark pools of market liquidity.  These are enormous trade tickets that get executed in virtual private exchanges which eventually get mapped in the formal exchanges.

Anyway, what does this mean to us small boats floating in the ocean of global financial markets?  We will continue to rock.  The tide is ebbing lower as asset allocation towards equities are being parked in cash while the European debt crisis remains unresolved in investors minds.  I for one think that more drastic actions should be taken against the violators of the monetary union conditions.  Of course, we will likely drift towards a compromise acceptable to both weak and strong economies of Europe.  After all, as Alden W. Clausen, president of the World Bank who presided over the huge Latin American sovereign debt defaults of the 1980’s, said -” countries do not fail.”  I would add, certainly not a country with thousands of years of history such as Greece.

In the meantime, I expect that our market will be buffeted by the storm that is going on in the developed world.

Tuesday morning, it rained in many places around the National Capital Region.  After a long dry spell, that is a welcome relief.  It may also be ominous of what lies ahead.  Could it be that new life would be blown in by these rains?  I wouldn’t stake my life savings on it.  What I would be trying to recognize in a more vigilant manner are the basics that serve as sure foundations of the companies whose stocks I follow.  The rains, for one, should be beneficial for power companies who can now shift to hydro as soon as water levels of the dams rise.  While the technical picture for AP appears to have its trend reversed, I would wait for further confirmation of these technical indicators.  For that matter, MPI and DMC which are partners in Maynilad, should be getting some relief from fears that Maynilad would be threatened by prolonged water shortages.

MER, for one, went the opposite way of the market on announcement during its shareholders meeting that Manuel V. Pangilinan was appointed CEO.  This marks a new era for the power company whose revenue growth has been quite robust in the first four months of 2010.  I would keep a sharp eye on MER.

The Gokongwei companies have been doing very well and the share prices of JGS, RLC and URC have been very strong.  I think that they will remain strong although I foresee a trading range developing while the pall of sovereign debt in Europe hang over our market.

The markets in New York had tanked sharply in early trade this time due to a sabre rattling threat by North Korea.  The strong recovery towards the close indicates to me that traders are starting to cover their shorts.  It may be too early to call a reversal in sentiment, but all the blood may have been already spilled.

For our market, the key will always be value.  There are some stocks that continue to present excellent value.  To avoid criticism that I am promoting some stocks, I would leave the selection to the individual reader.  My call is that we could work our way up to 3200 level in the PSEi over the next few weeks.  It may take some time before bullishness flows again in our blood.  Perhaps, when we see more rains over the NCR, the relief from the long hot summer might liven our sentiments.

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

54 Comments »

  1. Morning Gus. Interesting how the US markets recovered after the initial drop. I was ready to pick up MBT under 50 today, but looks like I’ll have to wait.

    Cheers

    Comment by Jack | May 26, 2010 | Reply

    • Hi Jack,
      The reason I like MBT very much because many foreign funds select leass than a handful of Philippine stocks when they want exposure to this market. It used to be just TEL; then it was TEL and AC; then it was TEL or AC. Now, AC does not look like a stock that could represent broad exposure to the Philippine market, however, I think MBT could be such a stock.

      Comment by Gus Cosio | May 28, 2010 | Reply

  2. I think the rebound is no longer shorters covering their positions. Perhaps, some of them may have covered late seeing the rebound. The shorters have already covered their positions since last Friday. 10,000 level for the dow is still being supported. It has not yet closed below that level though it is lingering for the past four days. I am now looking at a rebound late this week until next week since earnings season for the US will come as early as next week which could be a catalyst for the rebound. The same with our index. I don’t thinks AP, DMC, ICT, FGEN, MER, etc… will report lower earnings compared to last year. Think about it guys. If you still have positions, just hold it but be very prudent and watch the major support for the dow and for our index.

    just my two cents.

    Comment by teddy | May 26, 2010 | Reply

    • My mistake, I thought we are at June already! Sorry. Still, earnings and value will still be the catalyst for the rebound.

      Comment by teddy | May 26, 2010 | Reply

    • True. Technicals seem to have been broken / breached. Gonna be a bumpy ride.

      Comment by Jack | May 26, 2010 | Reply

    • Good points, teddy.

      Comment by Gus Cosio | May 28, 2010 | Reply

  3. My call is that we could work our way up to 3200 level in the PSEi over the next few weeks. — im with you sir gus, this is what we need to do!!! there are plenty of good news on several stocks… 20%-25% profit at year end is very possible.

    Comment by draco23 | May 26, 2010 | Reply

    • Actually, if you do very thorough stock selection, I think 25% is easily achievable by end 2010.

      Comment by Gus Cosio | May 28, 2010 | Reply

  4. Sir Gus,

    Is this a panic sell for AP and AEV? My porfolio is 35% AP, 35% AEV and 30% DMC. Thank you.

    Comment by jaayem | May 26, 2010 | Reply

    • That’s a very strong portfolio. I would not be at all worried.

      Comment by Gus Cosio | May 28, 2010 | Reply

  5. Jaayem, why don’t you add MBT in your portfolio?

    Comment by JLC | May 26, 2010 | Reply

    • JLC, Im planning to sell half of my AP and AEV at loss to buy MBT, in fear that AP will reversed its trend. Still hoping for a good sign in AP and AEV tommorrow.

      Comment by jaayem | May 26, 2010 | Reply

      • Beware the banks. Despite good fundamentals, we aren’t shielded from what goes on abroad.

        Comment by Jack | May 26, 2010

  6. Jack. Yes, we could be affected in terms of sentiment. Prices could go down. But if you look at the value – higher asset yields from improving asset quality should bring multiples of these banks better than their historical. So, if prices of these phil banks could go down. that presents a buying (or buying more) opportunity.

    Comment by JLC | May 26, 2010 | Reply

    • Agree. Just saying we cant ignore the trend.

      Comment by Jack | May 26, 2010 | Reply

    • I would not be worried about banks like MBT, PNB, UBP and CHIB. I think they have little or no exposure to Europe.

      Comment by Gus Cosio | May 28, 2010 | Reply

  7. Gents,

    If possible, please study if you can preserve capital. Its one thing to sell at a profit and shift to another stock. But selling at a loss to buy something, with the assumption that its price will go up right away maybe in tall order.

    After all, sustainable net income growth rates, in the medium term, it can come from both a bank and electricity firm like AP/AEV.

    At what rates, we are not sure. But which prices will improve ahead, and at what valuation, we are also not sure.

    Regards

    Comment by alex | May 26, 2010 | Reply

  8. Hi sir GUS, I think both AP/AEV are overbought already They are in a downtrend.I think Meralco is expensive too w/ only 2% div. yield…I prefer GMA/GMAp,METRObnk,Tel and RLC

    Comment by wilson | May 26, 2010 | Reply

    • Wilson,
      I would not recommend GMA7/GMAP and TEL for the time being. I would look at MER even if it is on the expensive side because of fundamental improvement in its operations and finances. I would buy AP or AEV on weakness and I would have equal favor on AEV and MBT.

      Comment by Gus Cosio | May 27, 2010 | Reply

  9. Hi Gus, I’m planning to Sell my AEv and buy DMC at what price is good to enter DMCI ? thnks and More power!

    Comment by ben | May 26, 2010 | Reply

    • Ben,
      I bought DMC at 9.60 and I bought it as high as 15.50. My average is around 12+. My aim is to keep my average cost below the market. I see DMC trading above 20 by year end. Of course, there will be ups and downs, so I’ll average my average cost in the course of market volatility. My suggestion is to take a position and average down when it goes down. The company fundamentals are very strong.

      Comment by Gus Cosio | May 27, 2010 | Reply

  10. Sir gus, please don’t be bothered by people who accuse you of promoting any such stock. Please continue posting your views on individual stocks as we always appreciate your in depth & well researched analysis.

    regards,
    steve

    Comment by steve | May 26, 2010 | Reply

    • Don’t worry, Steve. I am not bothered. I just want to make it clear that in whatever I write, I say it as I see it.

      Comment by Gus Cosio | May 27, 2010 | Reply

  11. Gents,

    Im not well versed on technicals. When a stock is overbought, meaning it will have a tendency to go down? But commmon sense will tell it maybe overbought because people like it for a reason, say spectacular earnings?

    Oversold, it may do technical rebound. But again, it maybe being sold down for a reason. No growth, earnings prospect not clear etc.

    Appreciate your help on the matter, thanks.

    Comment by alex | May 26, 2010 | Reply

    • “overboughts” and “oversolds” are more useful in trading ranges. when a stock starts to trend (up or down) these technical indicators can be misleading as they can become even more ‘overbought’ or more ‘oversold’. the key is being able to identify whether or not the stock is consolidating or in a range.

      usually, if someone is buying based primarily on fundamentals, they should probably sell based on fundamentals too. if they incorporate technicals to time their entry, they should incorporate technicals to time their exits also.

      just my 2 cents. good luck!

      Comment by Jack B. Nimble | May 26, 2010 | Reply

      • Thank you, Jack.

        Comment by alex | May 26, 2010

      • oops…correction: “the key is being able to identify whether or not the stock is consolidating or in a range” should be “the key is being able to identify whether or not the stock is consolidating or trending”

        Comment by Jack B. Nimble | May 27, 2010

  12. “To avoid criticism that I am promoting some stocks, I would leave the selection to the individual reader.”

    Hi Sir Gus! I hope you don’t mean you will no longer be mentioning your favorite stocks and why? I enjoy reading your perspective on such matters. I think a disclosure as to whether or not you hold a position in a certain stock should suffice –I believe you’ve been doing that already and I’ve seen you instruct people to get out of their position if it makes them uncomfortable. I think that should be enough!

    Please don’t leave out your stock recommendations (and the reasons too of course).

    Thanks!!

    Comment by Jack B. Nimble | May 26, 2010 | Reply

    • Sir Gus,

      I agree. You may like and promote those stocks but the decision is and will have to be taken by those who buy. Also if one likes a stock and puts his savings on it, then we must be convinced and comfortable with the story behind that company.

      Allow me to point one, every Monday there is, in the research section of the newpaper business world, stock recommendations by various analysts. Its sad to note that the quality of the reasoning and the recommendations are haphazard, sometimes stating it is cheap (by what measure??), sometimes the stocks dont even have good stories to tell.

      Why dont we assemble something, have Sir Gus edit it and send it to business world. . . and get a fee??? Im joking of course…

      Thanks

      Comment by alex | May 26, 2010 | Reply

      • I am flattered Alex, but let us give a chance for others to present things the way they want it. I will continue to write my thoughts about markets in general with the primary aim of getting people interested in our financial market. Hopefully, our readers can imbibe a few ideas in the discussions here and are able to develop a combination of pragmatism and boldness in approaching the stock market.

        Comment by Gus Cosio | May 27, 2010

  13. Sir Gus,

    Do you think AP has reversed it’s trend?

    Comment by JohnTheMan | May 26, 2010 | Reply

    • I think ap/aev is in downtrend already…buying at the top is very risky a friendly advice.hehe

      Comment by ben | May 27, 2010 | Reply

      • Indeed, stock prices can be quite surprising that it is always prudent never to make a definite statement. When Ben predicted a downtrend on 27 May 2010, AP closed at P15.50 a piece. Thereafter, AP continued its upward trend, closing at P36.90 on 3 December 2010. As a newbie in the stock market, I now learned that when, in one’s assessment, a stock is fundamentally sound,he “should be greedy when everyone is fearful”.

        Comment by beanstalker | February 5, 2011

    • John,
      I think that AP is consolidating. It has been trending strongly for about a year and it is only now that it is seeing a strong correction. I believe that AP’s upward trend is still intact.

      Comment by Gus Cosio | May 27, 2010 | Reply

  14. ben,

    What is your basis for the “downtrend”? We are not seeing any “lower lows”, and “lower highs” w/c are the indecators for a downtrend in the technical perspective, i think the price of AP right now is the perfect time to buy, for it’s on the support line, if it breaks the support line, then that’s the time you sell.

    Comment by JohnTheMan | May 27, 2010 | Reply

    • it should have been spelled “indicators”, sorry, i just woke up 😀

      Comment by JohnTheMan | May 27, 2010 | Reply

    • That’s a friendly advice if you think its good time to buy(aev @17 or 18) at the top then you can do so…it’s your risk not mine..Dow is going down also i think will be seeing a DOW 8500 by October if EURO problem persist.Good luck to your trade and GODBLESS.

      Comment by ben | May 27, 2010 | Reply

      • Ben,
        Personally, the Euro problem is not as severe as the sub-prime problem of 2008. Alden W. Clausen, former CEO of Bank of America and former President World Bank president, said that countries do not fail. He said this before the Latin American debt crisis of 1982. He was proven right in spite of the LDC crisis that followed in late 1980’s. Nevertheless, the problem countries then were Argentina, Brazil, Mexico and Venezuela followed by the lesser countries of Latin America. In Asia, it was only the Philippines that fit the category. All these countries got out of their debt predicament, some faster than others. Argentina was the most troublesome. Through all these, the markets eventually saw rallies. I think an 8500 DOW might be too pessimistic a view.

        Comment by Gus Cosio | May 27, 2010

  15. Sir Gus!

    A sudden REBOUND! REJOICE! hahah 🙂

    Comment by JohnTheMan | May 27, 2010 | Reply

    • John,
      Our market has so far outperformed the DJIA and the S&P500. I maintain my view that capital continues to flow emerging Asia. If Europe and the U.S. including Japan tanks, I do not think that we will go the amse way or perhaps the same degree. With could go the same direction but not as bad.

      Comment by Gus Cosio | May 27, 2010 | Reply

  16. hi Sir Gus,

    Do you have any idea about ORE, today it hits another 52year high (breaking its resistance at 2.12). Do you think, some people are manipulating stock so that it will reach its target price. Looking at bid & price, bid level is more than 8million for every line of bids.

    Thanks in advance.

    Comment by Romy | May 27, 2010 | Reply

    • Romy,
      You probably mean “52-week high.” I really have very little insight on ORE. From the prospectus that it gave investors a few years back, it appears to me that they are attempting to be a serious player in mining. Unfortunately, I have no indication of their mineral resources in terms of proven reserves. I cannot tell you much about the share. Having said that, it could be that many are speculating on the stock.

      Comment by Gus Cosio | May 27, 2010 | Reply

    • Romy,

      ORE is a jockeyed stock. If you want to play with the jockeys, I suggest you take profits quickly as these stocks swing wildly when being played. If you follow any stock forum, I would strongly advise you to be very very cautious and objective as some may appear to be a collection of a sizable number of investors. However, I know of one that deletes unfavourable posts against the stocks “controlled” by the owner of the site. I, personally, have committed to investing only in companies that have good fundamentals. It has rewarded me well and even though I get squirmy during downturns, I quickly recover when the market rebounds simply because the shares I own have a) real business operations; b) big market following; c) good earnings prospects.

      Comment by richard | May 27, 2010 | Reply

      • Thanks for your comments, richard.

        Comment by Gus Cosio | May 27, 2010

  17. Hi Tito Gus, GO GO PSE, GO GO metrobank…..When the Bear is away..the BULL will PLAY…

    Comment by Sophia | May 27, 2010 | Reply

    • Hi sophia! i like your comment so i’ll repeat it..

      Comment by Yulla | May 27, 2010 | Reply

  18. Hi Tito Gus, GO GO PSE, GO GO metrobank…..When the Bear is away..the BULL will PLAY…

    Comment by Yulla | May 27, 2010 | Reply

    • Don’t get me wrong, Yulla. I like MBT because I can see it as a market proxy in the light that TEL and AC have fallen out of favor. Unfortunately, I still own some TEL. Fortunately, I was able to get more MBT.

      Comment by Gus Cosio | May 27, 2010 | Reply

  19. 4:00 pm 27 May 2010/ DOW futures up by more than 1.6%. If this trend continues, tomorrow will be another good trading day and will present an opportunity for those who wish to be liquid for the moment and re-enter the market when it is less volatile. MY forecast is that most stocks discussed here (DMC, MPI, PNB, MBT, AP) will increase at some point in tom’s trading by more than two notches (~3%) from its today’s price. folks, a nice weekend, i think, we will have. Cheers!

    Comment by ChrisM | May 27, 2010 | Reply

    • Hey Chris,
      You’re not the only person constructive in the market. It is one of those days when a pragmatic market forecaster in the person of Barton Biggs (former strategist for Morgan Stanley) and Marc Faber (Dr. Doom) think that the global markets are oversold.

      Comment by Gus Cosio | May 27, 2010 | Reply

      • Impressive forecast Chris!

        Comment by Alex | May 28, 2010

  20. Hi Gus,

    I would like to thank you for keeping your blog alive. It is a wonderful place where people interested in the stock market get a chance to learn more about the PSE. Though you regularly mention individual stocks on your posts, your recommendations are backed by hard facts re company operations/performance.

    I have been following your blog since mid-Feb. Then, as I do now, I also read and, from time to time, post on stock market forums. I see how they can seem to be the real deal because of the way the gurus brag about their good trades. However, one must be careful in following the “tips” of these so called gurus. I am not saying they are all the same. Just a select few. But these people have a following so immense that their funds, together with their minions, can fulfill their own prophecies. Well and good if the unsuspecting investor gets to take profit ahead of the others. But this is rarely the case for market newbies.

    Your cause is a noble cause. I know that your intentions are genuine unlike that of other “market makers” who have mastered the art of feigning sincerity. That is why your advise of only buying stocks one feels confident about is very wise and true. I bought stocks of a company I like at a price that is higher than what I’d be comfortable in. However, since I believe in the business prospects of the company moving forward, I do not feel as bad as I would had I gotten stuck holding shares of a basura stock.

    I believe I speak for everyone when I say that your posts and comments shed light to us less experienced investors. Thank you for sharing your market knowledge and wisdom to us. May our market get a bigger following thru honest knowledge-sharing.

    Comment by richard | May 27, 2010 | Reply

    • Thank you for your comments, Richard. I hope all those who follow this blog are able to pick up some ideas and even contribute their own. I would request that comments be made in polite language. We want to be of service to our readers.

      Comment by Gus Cosio | May 28, 2010 | Reply

      • Noted sir.

        Comment by richard | May 28, 2010


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