Gus Cosio says so

Ideas on the Philippine Stock Market

Slicing the tops

10:30 am  Thursday  3 June 2010

We will likely see some enthusiasm in the market following the 2.25% rise in New York’s DJIA.  This comes after a 2.34% two day decline of the same index.  The Market is really fickle reacting to almost any daily indicator.  It appears to me that the global investor, unlike for most of last year, is not taking any long-term view of the markets.  While the volatility (VIX) in the U.S. has come off a bit, it does not appear to be moving lower in the coming days and, perhaps, even weeks.

Most market participants have seen that when New York sneezes, the rest of the financial world catches the cold.  we saw that a few times these past few months.  The latest discomfort was the European sovereign debt crisis, but that is looking to be addressed.  The latest news is that Greece is privatizing part of its national railway and its postal system to raise cash in the government’s coffers.  A drastic and unpopular fiscal austerity measure is being adopted which will probably stave off threats of Greece being booted out of the currency union.  Spain and Portugal have been very positive in their response to the call of fiscal prudence among all European Monetary Union members that the impression being created is that a new era of fiscal union is developing in the continent.  Of course, things will not change overnight but what is important is that investors have something positive to expect.

In the U.S., the impression appears to be that emerging markets are presently overheated.  This is why the Shanghai index is having difficult time lifting itself from the doldrums that it has been having for almost a year now.  Nevertheless, smaller markets like the Philippines have not really seen a deluge of investments coming from the global players.  The PSE, while seeing average daily value turnover at higher levels compared to years 2009 and 2008,  has not reached trading volumes seen in year 2007.  We can be pessimistic and say that the market will not be as robust or we could be optimistic and adopt a view that we are still on our way to 2007 trading volumes.

In the near term, I think that the PSEi will remain inside 3330 which was the high we saw at the end of April.  While there would be bursts of optimism, I find it difficult to see any strong stimulus to push the market into break out levels.  Yesterday, it was the index stocks that lead the gainers.  I think the same will happen perhaps for another trading day or so, but if we do not break out of the 3330 level we may just pull back a bit.  In that case, it may be wise to lighten up on index stocks and put some weight on special situations.

One situation seems to be happening in DGTL.  The market share of GLO has been eroded by DGTL.  Some investors do not favor the telco sector because it is not seeing any growth for the time being.  DGTL, however, is growing but at the expense of GLO.  Perhaps, there is momentum in their earnings stream as a result of these gains in market share.

The merger story at PNB continues to make this stock a good proposition.  It looks closer at hand today than it was a few months ago.  In the power sector, EDC might be worth a punt since it is trading below the middle of its trading range.  MPI is in the same position in the range.

Essentially, my message is that if people agree with me that we are going to stay in this range, then it would not be advisable to add to positions.  Rather, it would be good to top slice on positions and keep the cash for possible dips.

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

21 Comments »

  1. Sir Gus I share the same view with MBT, cheaper compared to it’s peers, but i also feel that the PSE is toppish, i guess what i’m trying to say is, when is the right time to be in MBT, when the PSE is at the 3000s level or when MBT goes back to 52? Also, is the current European debacle over or should we braise ourselves for another bumpy ride? As always, good health to you sir!!!

    Comment by migs-ron | June 3, 2010 | Reply

    • I quite agree that the PSEi is hitting resistance. MBT below 55 is always a buy for me.

      Comment by Gus Cosio | June 3, 2010 | Reply

  2. Sir Gus,

    Thanks for these thoughts today. It seems DGTl is indeed growing at the expense of GLO in terms of subscribers, but especially it is affecting both Tel and GLo by lowering the revenue per users. With out DGTL, the post paid plans of both telcos have quite high ARPU, now its trend is going down.

    Market seems to be reacting to news that by end 2010 the cell sites of the 3 telcos will be at par with each other. If that happens, as we are seeing it now then there’s no point in paying a premium for better coverage.

    Regards,

    Comment by alex | June 3, 2010 | Reply

    • That is why as a sector, telcos will lag the market.

      Comment by Gus Cosio | June 3, 2010 | Reply

  3. Sir Gus,

    SCC at 75.50, is this a good buy?

    Knowing that it gives P6 dividend yearly in the last 2 years, that’s like 8% interest per annum(Better than time deposit rates) plus its growth through capital appreciation is erresistable with the Calaca story, it seems to me that this stock is the cash cow of DMC.

    Your insights would be highly appreciated 🙂

    Comment by JohnTheMan | June 3, 2010 | Reply

    • John,
      In my view, SCC can go to above 100, but that’s just me.

      Comment by Gus Cosio | June 3, 2010 | Reply

  4. Hi Sir Gus,

    I became excited today(all my stock positions went up,thanks to the Gokongwei group), PSE index leap above the 3330. I am just curious, would you believe there still a room for the index to go higher breaking the resistance of 3330 – 3400. I am afraid that tomorrow trading will become weak.

    Regarding MBT, I am conscious about MBT. I am thinking to buy but I am bothered by these net foreign buying (for the past days, almost 75% of the transactions were foreigners). Bothered because I am thinking what if they will sell(tendency it goes down).

    Thanks for the thoughts.

    Comment by Olive | June 3, 2010 | Reply

    • Olive,
      This market is still cheap. In Bloomberg, the consensus forward PE is only 13X. This is a measure that foreign fund managers look at. I would not worry about MBT. There is strong support at 55, and I think the stock will be closer to 70 by end 2010.

      Comment by Gus Cosio | June 3, 2010 | Reply

  5. Hi Sir Gus,
    Sir any insights about ISM.
    Thank you so much.

    Comment by jaayem | June 3, 2010 | Reply

    • I have nothing new on ISM. If you like a speculative play, try APC. Volume is growing.

      Comment by Gus Cosio | June 3, 2010 | Reply

      • Thank you sir Gus.

        Comment by jaayem | June 3, 2010

  6. Hi Gus,

    Is today’s breakout of the triple top legit or are we possibly seeing something similar to what happened on the 3rd peak of the market, break out of double top only to go back down. In your view sir, resume na uptrend natin? Today I sold all my AP and ALI, left holding DMC and ICT equivalent to 37.5% of my portfolio. I sold thinking we’d go south again but that was before the runoff. And with the US markets looking very bullish, and the DOW still below 10,300, mag 3,500 na kaya PSEi?

    As always, thanks!

    Comment by richard | June 3, 2010 | Reply

    • Richard,
      I think we can eventually take out 3500. When I look at the DJIA, I see it finiding resistance at the 200 day moving average. The PSEi, on the other hand, looks well supported at its 50 day moving average. We are actually ouperforming th global markets.

      Comment by Gus Cosio | June 3, 2010 | Reply

  7. Hi,

    If I may, the PSEI being composite is compose of companies, some with good growth story, some laggards, some maybe overvalued with lean volumes, PE valuations ranging from say 10 to 25.

    With in, there are companies with good growth story but reasonable PE valuations. The PSEI may move up or down but the individually strong companies will partly have there own course.

    Interesting to study those things and will give further ideas.

    Thanks

    Comment by alex | June 3, 2010 | Reply

  8. Sir Gus,
    I currently hold FGEN (30%), EDC(30%) and MPI(40%). Bought all of these at prices within current trade range. Im a bit bored with these stocks as of the moment. What sector do you think I should slice my portfolio for? Any suggestion on a particular stock?
    Thanks

    Comment by Mark Anthony | June 3, 2010 | Reply

    • Mark,

      We are the same on FGEN, i got it at 10.75, im getting bored with its performance and its inability to break its resistance around 11. Although, doing technical analysis with FGEN, is telling me to hold on to it a little. Perhaps we should hear Sir Gus’s idea on these stocks.

      Comment by JohnTheMan | June 3, 2010 | Reply

      • Yes, John, I think its all about patience. Everyone seems to be busy with other power stocks.

        Comment by mark anthony | June 3, 2010

    • Mark,
      If you are patient,I think you’ll be able to sell MPI around 3.25 in a few days, EDC at 5.50 and FGEN at 11.50. FGEN should be a long term hold. This stock could be 15 by year end.

      Comment by Gus Cosio | June 3, 2010 | Reply

      • Thanks Sir for enlightening. Hopefully I can re-calibrate some monies and put it in some sectors.
        Regards, Mark

        Comment by mark anthony | June 3, 2010

  9. Hi sir Gus. Par value for PNB is listed at P40 and currently trading at the 28 to 31 range. How do you see it being priced after the merger?

    Comment by jojo | June 3, 2010 | Reply

    • Jojo,
      I see PNB around 42 to 45 after the merger.

      Comment by Gus Cosio | June 3, 2010 | Reply


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