Gus Cosio says so

Ideas on the Philippine Stock Market

Rabbits in the hat

7:10 pm  Thursday  3 June 2010  Philippine Stock Exchange Index  3355.23 (+2.0%)

We had an unexpected breakout today.  I noticed a sharp rise in the price of MER which was the biggest contributor to the rise of the index today adding 11.1 points.  SMPH added 8.39 points and TEL 6.86.  Ayala stocks  AC, ALI, BPI and GLO together piled up 14.14 points.  All other index shares either added to the rise or did not affect it except for GMA7 and MBT which together took away 1.6 points.

What this looks like to me is that institutional fund managers are buying the market and not just individual stocks.  AP, AEV, DMC, RLC and URC are following through their recent strength.  What looks to be catching up with the rest of its family is DGTL.  If you recall, the strength in the prices of URC and RLC spurred a lot of enthusiasm for JGS.  It appears that DGTL has opened up the imagination of those closely following the Gokongwei group.

I was thinking that the index would be hitting resistance at the 3330 level, buy today’s 66 point rally takes all the bets off that number.  We are poised to take this market to the next level.  It may also be that institutional investor confidence is returning given that the presidential proclamation by Congress is now close at hand.

The movement of MER may be indicating another M&A deal, possibly the SMC group eventually selling out their position.  That remains to be seen.  What is impressive is the movement of SM, SMDC and SMPH together with their cousin CHIB.  In spite of the roller coaster ride in the market over the past few days, these shares have been rock steady and have slowly but surely gone forward.  I was recommending positions in SMDC for a while even though it was a little pricey.  There are some investors who are bullish in Henry Sy companies, and it looks to me that they are coming out of the woodwork.

Personally, I would not be chasing the market despite this break-out.  I am betting that this is a false break because MER may have skewed the movement of the index.  While my long-term view is positive and my general outlook is constructive, I think there a number of investors and traders who may want to raise cash by taking some profits on these strong performers.  I think that prices will not yet run away except for those that are only catching up.  I think we will see some sideways movement since many are still looking to Wall street to gauge if the global picture has indeed turned positive.

As a strategy, I would not recommend getting out of positions at all.  Any selling should just be trained at raising cash for new purchases.  In other words, those who are looking to take profits in some stocks ought to rotate into newly rejuvenated counters.  If the global picture improves, our market could put down another 200 points over the next 3 months simply because valuations are not at all demanding and the domestic economy may still pull out a few surprises.

8:50 am  Friday 4 June 2010 (update)

The markets overseas appears to be shaking off the fears that the European Sovereign debt crisis brought about in the month of May.  This first week of June seems to be drawing people back to the market. Many U.S. analysts are thinking that the market could rise from what are seen to be oversold levels.

Our PSEi did not fall as much as the global markets did.  This week has actually been spectacular for local stock prices.  I think we will end this week even with higher prices as support prices for our favorite stocks have moved higher.  I think it is a good time to pick up some EDC below 5 and PNB around 30.  There is also a good chance that BPC and MPI may rise further.  MER will likely maintain its strength.  DMC, AP and AEV have very strong support at these levels.  SM, SMDC and SMPH should not be ignored either.  I would not be surprised if MBT challenged 60 very soon.

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June 3, 2010 - Posted by | Financial markets in Asia

41 Comments »

  1. I planning on selling my MER and buying SCC. What do you think Gus?

    Comment by Ryan | June 3, 2010 | Reply

    • Hi Ryan,
      I think that will work. Just be patient because SCC, I think, can move up 50% while I see only another 20% for MER.

      Comment by Gus Cosio | June 3, 2010 | Reply

  2. Sir Gus,

    Of all the property stocks, who do you think will benefit most from the REIT?

    Comment by Norlan | June 3, 2010 | Reply

    • Norlan,
      Instinctively, i think it would be SMPH because it has the most in commercial rentals.

      Comment by Gus Cosio | June 3, 2010 | Reply

  3. Hi Sir Gus,
    What’s ur position with JFC? I’m thinking of holding it long term but what’s its yearly index? thanks

    Comment by newbie | June 3, 2010 | Reply

    • Newbie,
      Owning JFC is like owning a fixed income security. It has very little volatility and you earn regular dividends. I normally like this stock when the market is bearish.

      Comment by Gus Cosio | June 4, 2010 | Reply

  4. Sir,

    We would like to know if there is any correlation between the increase/decrease in the BSP discount rate and the inflation rate which could affect the stock market or the peso exchange rate,

    We would greatly appreciate your views with regards to this matter, so that we could invest wisely.

    Thanks

    shanu

    Comment by Shanu Mathani | June 4, 2010 | Reply

    • Definitely Shanu,
      When the BSP is in tightening mode, stock prices will be lethargic. Today, the BSP announce that the status quo on interest rates remain. The present monetary condition is that there is a lot of liquidity in the hands of financial institutions. This means that there is a lot of cash that can find its way to the stock market.
      On the exchange rate, given that money is flowing to emerging markets, a rise in interest rates domestically would attract more money to the peso making it stronger versus the US$.

      Comment by Gus Cosio | June 4, 2010 | Reply

      • Sir,

        when you say the BSP is on a tightening mode, does that mean they are increasing or decreasing interest rates ?

        Would BSP maintaining the status quo on interest rates, mean that exchange rates might go up, since inflation rates are already going up ? am i correct in this assumption ?

        Thanks for being patient with me, am a newbie who wants to learn the ropes before diving into the pool.

        Thanks

        Shanu

        Comment by Shanu Mathani | June 4, 2010

      • Let me answer this Shanu. When the BSP is on tightening mode,it means they are raising interest rates to reduce excess liquidity. They do this to somehow stunt the rapid growth which results in inflation. When sir Gus said the BSP maintained the status quo, they kept the interest rates unchanged to allow more growth to happen. Even if inflation might be on the rise, if it is still within manageable levels, the BSP would probably keep the rates as they are.

        As to the exchange rate, the higher the interest rates, the stronger the peso will be. When the rates get cut, the peso weakens because the yield will be lower. I hope this shed light on your queries.

        The correlation between interest rates and exchange rate I think is inverse, meaning when inflation is high, the peso weakens because your P1 will be able to buy less items going forward. As the saying goes, when inflation is on the rise, the value of all things rise, except for cash.

        Comment by richard | June 4, 2010

  5. richard,

    thanks for the very concise reply i truly appreciate it, can you tell me if there are any instances in our country when exchange rates and interest rates were not inversely correlated, and how did it come about ?

    Comment by Shanu Mathani | June 4, 2010 | Reply

    • There’s no instance that I’m aware of. IMO, all things being equal, there’s no reason for a currency to go up when interest rates are cut because no one would buy a currency higher when it will yield less moving forward. This assumption however does not take into consideration the fiscal policies of other countries. There are a million things that can affect the exchange rate including political stability, economic performance, even acts of God to name a few.

      Comment by richard | June 4, 2010 | Reply

  6. Hi Sir Gus,

    Based from Newbie’s inquiry, aside from JFC, what other companies have very little volatility which I can buy for long term investment? Thanks.

    Comment by Tubski | June 4, 2010 | Reply

    • Tubski,
      BPI is one. But if you are a long term investor, you should not really mind volatility.

      Comment by Gus Cosio | June 4, 2010 | Reply

  7. Sir Gus,

    Would you chase JGS at this levels?

    Comment by JohnTheMan | June 4, 2010 | Reply

    • John, I don’t really like chasing prices. Often times it goes higher, but I’d rather buy something that I am very comfortable with at the price.

      Comment by Gus Cosio | June 4, 2010 | Reply

  8. Hi sir Gus,

    What are your thoughts on FPH and PNB as of now? I oought both @ 57 and 30 respectively.

    thanks!

    Comment by mike tan | June 4, 2010 | Reply

    • Hi Mike,
      My estimate of FPH NAV is around 70. It may get there, it may not; but it will not come down significantly. It will improve depending on how constructive the market is. My take on PNB is that it should be worth 42 to 45 once the merger with Allied is done. I reckon that to be around 2 months down the road. I’m a buyer of PNB at today’s level.

      Comment by Gus Cosio | June 4, 2010 | Reply

      • Sir Gus,

        I think the merger will bring around 75p per share in book value to pnb, don’t you think so too?

        Comment by bunny | June 4, 2010

      • Bunny,
        Initially, my number was 75 pesos Book Value after the merger but that may be too optimistic. Also, PNB has been trading at a discount to book value so I would like to be conservative and continue to value PNB at a discount to book value.

        Comment by Gus Cosio | June 4, 2010

      • Lol! how i wish it would trade at 75 after the merger 😀

        Comment by JohnTheMan | June 4, 2010

      • One thing I’ve noticed though, PNB has been trading at a P/E of 20+ for the years before 2008 sometimes going even as high as a p/e of 30. I think the stock has not yet picked up since the crisis. and to think that PNB’s performance is going stronger through the years, I’d still continue to accumulate this stock even if it went up to 35 or 40, but why wait for it to go that high when I can do it now. lol

        Comment by bunny | June 4, 2010

      • with the year-end eps of PNB of 3.3, even having a P/E of 12 would already mean almost 40. So I don’t think a rise on the stock is too far off. PNB has been neglected for quite sometime

        Comment by bunny | June 4, 2010

      • Hi Bunny,
        My sentiments as well.

        Comment by Gus Cosio | June 7, 2010

      • Hi,

        also like PNB due to wide branch presence,including strong international remitance network, and it seems to have good land banks arising from foreclosures. (ALI and PNB venture, PNB contributing land.)

        I think what is dragging it is the NPL in its books from the long time that it had been a government bank.

        Thanks

        Comment by alex | June 6, 2010

  9. Hi Sir Gus,

    You mentioned this morning Aev has strong support, it closed today at P20, would it be ripe for a pull back? many thanks sir

    Comment by ed | June 4, 2010 | Reply

  10. Hi Gus,

    Today I bought EDC with the proceeds from my sale of AP. I chose to rotate to EDC since it hasn’t moved up by much and is trading near its support. However, after seeing the chart analysis by someone from a T.A forum, it is currently trading below the previous support line, which now serves as its resistance line. I’m still not too concerned since its most recent low, 4.65, is near my buying price of 4.85. What is your view on this sir?

    Thanks!

    Comment by richard | June 4, 2010 | Reply

    • Richard,
      I like your trade selling AP to buy EDC. I actually did the trade myself early today. Thank you.

      Comment by Gus Cosio | June 7, 2010 | Reply

  11. Hi Sir Gus!

    I’m a newbie at stock trading, and I would like to ask for some advice. I own some AC, FGEN, and MER, and I sold all my MER stocks at profit after buying them a week ago. I’m thinking of buying stocks again, maybe AP, EDC, SCC, PX or MER (when prices are lower). Which of these do you think are good for short to medium term (would 1-1.5 years be classified as medium term?)? Or do you have other recommended stocks? Thank you very much in advance!

    Comment by newinstocks | June 4, 2010 | Reply

    • Newinstocks,
      these are very good stock. Why don’t you stick to trading these as they are all good for short and longer term hold.

      Comment by Gus Cosio | June 7, 2010 | Reply

  12. Hi sir Gus , Rainy season is coming I think its time to jump to Manila water ..

    Comment by berber | June 5, 2010 | Reply

    • Berber,
      It looks like a lot of people have this idea.

      Comment by Gus Cosio | June 7, 2010 | Reply

  13. Hi Tito Gus, planning to buy MWC on monday i think its the coming thing….

    Comment by sophia | June 5, 2010 | Reply

    • Sophia,
      MWC is a good defensive stock. You buy it if you are not very comfortable with the market but want to be invested. MWC will be very stable in earnings and the stock will behave more like a bond which pays out a yield regularly.

      Comment by Gus Cosio | June 7, 2010 | Reply

  14. Im selling my Meralco to buy manila water…..

    Comment by mike | June 5, 2010 | Reply

    • Mike,
      I’d think about it again.

      Comment by Gus Cosio | June 7, 2010 | Reply

  15. Sir Gus,

    What are your thoughts on TA? I was thinking of unloading this stock and take position on either FGEN or PNB.

    Thanks!

    Comment by Ron | June 5, 2010 | Reply

    • Ron,
      I don’t follow TA, so I probably like FGEN and PNB better than TA.

      Comment by Gus Cosio | June 7, 2010 | Reply

  16. manila waters is very ok…not yet in a froth ..Most PSE stocks right now are in a bubble state waiting to burst…

    Comment by trixie | June 6, 2010 | Reply

  17. Sir Gus,

    I think getting MPI, right now(2.8) has a better short term return than MWC (15.25). Since MPI also holds Maynilad, and would also benefit this rainy season, plus it’s purchase of 51% on Bacolod hospital should fuel it’s growth in the coming weeks. Not to mention that 2.8 is a very strong support for MPI.

    Comment by JohnTheMan | June 7, 2010 | Reply

    • John,
      I tend to agree with your idea.

      Comment by Gus Cosio | June 7, 2010 | Reply


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