Gus Cosio says so

Ideas on the Philippine Stock Market

Till the fat lady sings

7:10 pm  Tuesday  8 June 2010  Philippine Stock Exchange Index  3274.26 ( +0.25%)

In spite of the two-day drop in New York, local stocks did not see similar negative sentiments from local investors.  It is not unusual because the fundamentals underlying local stocks have remained strong.  Take MER for instance.  Electricity sales of MER are expected to pick up even further in the second quarter in the back of an already strong 14% increase in the first quarter this year.  The thing about Meralco sales is it foreshadows the strength in other sectors of the economy.  In 1Q10, it was the industrial users that buoyed electricity sales implying that businesses are humming quite well.  The coming of the rains bodes even better for agricultural production which contracted in the first quarter.  Strong agricultural production raises consumer spending in the countryside.

Observe that you have very strong demand for stocks like DMC, EDC, and MER due to the strength of the power sector.  You also have follow through support for stocks like JGS, DGTL and URC.  This is further strengthened by obvious buying support for SM, SMPH and SMDC.  The foreign houses seem to be accumulating even TEL which has been a laggard simply because it is a surrogate for the broad market for the larger foreign funds.

Perhaps, the bounce in the local market can be attributed to pronouncements by U.S. Fed Chairman Bernanke that the growth in the U.S. is still on track.  I for one think that the U.S. market is oversold and could see a slow and gradual climb from these levels in the coming days.  While Philippine stocks are not generally oversold, I can sense positive sentiment from investors following our domestic market.  As I mentioned a few days back, institutional investors will find it difficult to ignore the 7.3% growth shown by the Philippine economy last quarter.  Even the magazine The Economist, which does not usually write articles on the Philippines started to highlight the economic gains that we saw last quarter.

In the next few days, we will still see volatility because there are no assurances being seen in the global markets for a steady recovery from the European debt crisis.  I will not hold my breath for that to happen because things will not change overnight.  One thing that I am certain about is that our economy’s dependence on Europe is very small.  Most of our exports – 42% – go to East Asia (ex-Japan) and 34% go to Japan and the U.S.  Whatever nervousness in the major market, to my mind, only strengthens the case for local investors to make their money work for them in the domestic market.

With domestic inflation remaining within the central bank’s target, the latest being 4.3%, the prospects of interest rates moving significantly higher is just not there.  Investors who want return have to come to the equities market in a big way to reap yields to their portfolio.  I think we have a lot more to squeeze in this market.

I would still keep an eye on stocks like PNB, PX, EDC, MBT, DMC, AP, SCC, AGI and URC, to name a few.  I would not abandon equities at this point but use these dips to add to positions.  The show is not over until the fat lady sings.

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June 8, 2010 - Posted by | Financial markets in Asia

38 Comments »

  1. I have recently unloaded some of my holdings and decided to position to PNB. Due to whats happening to Hungary and its effects on our market, would it be a reasonable bet to settle at 30? Based on my research, it is expected to pullback to 28.5 this week then rev up to 29-32 in the following weeks. My gut tells me to wait a few more days but another part of me is saying to loading up.

    Thanks!

    Comment by James | June 8, 2010 | Reply

  2. what do u suggest i do, am already all in but my cost average is still 2007 year highs, if i try to shift them now i will lose roughly about half my investment which is equivalent to a brand new pajero 2010.

    Comment by gerald | June 8, 2010 | Reply

    • buying at the top is a financial suicide my auntie lost 250k in just 4 months in 2007…She buys first gen @ 55/share and RLC at 17.5/sh

      Comment by marlon | June 8, 2010 | Reply

      • Marlon,
        The error that most people nurture is that they enter the market when it is strong. They end up buying at the top. I like the market today because people are selling.

        Comment by Gus Cosio | June 9, 2010

    • gerald,

      That would depend on the stocks in your portfolio. If they are fundamentally sound companies then i would average down if i were you. It should’nt be hard to buy a fundamentally sound company with a good following cheaper than you previously bought it. But then again, emotions are really hard control.

      Comment by JohnTheMan | June 9, 2010 | Reply

    • Hi Gerald…that’s unfortunate. this may sound blunt but this is what i think…

      Admit you made the mistake in 2007 and don’t compound the error by letting your loss run. Sell the stock (PAX) on strength and start over. Whether the stock goes up further or not is beside the point in my opinion. the point is that you take responsibility for your mistake. this will be painful but the pain will teach you to manage your money properly next time. Also, being in cash will allow you to think clearly to make better investment decisions the next time around.

      “..if i try to shift them now i will lose roughly about half my investment which is equivalent to a brand new pajero 2010”

      You’ve already lost half your investment in my opinion.

      Seriously think about taking a seminar or two about trading/investing…it’s cheaper than a Pajero.

      Comment by Jack B. Nimble | June 9, 2010 | Reply

    • Gerald,
      You have to have a dynamic perspective on your portfolio. If you sell all your positions and walk away from the market permanently, then, yes, you have a big write-off on your hands. If you adjust positions, however, selling non-performing stocks in favor of those expected to perform based on sound fundamentals, then all is not lost. You still have your portfolio, and perhaps this time, it will perform better. 2007 was the top of the market. I, for one, sold out at a loss in February 2008. i did some trades later in 2008, but only opportunistic ones. I really got back into the market in November 2008 when TEL was trading at 1900. I added to my position in February 2009 even when the market had not yet hit bottom. The point is, if you have a long term commitment to the market, you can make all those losses back.

      Comment by Gus Cosio | June 9, 2010 | Reply

    • Well, you could sell PAX, and buy PNB. 😀

      Comment by JohnTheMan | June 9, 2010 | Reply

      • Categorically a yes.

        Comment by Gus Cosio | June 9, 2010

  3. Hi Sir Gus!

    Just 3 quick questions:

    1. Are you sticking with your forecast that the PSEi will end the year up?

    2. How bout the U.S.?

    3. One of the owners of a brokerage firm once said in a seminar something like “economies decouple but financial markets do not” …would you agree/disagree with that?

    Thanks!! 🙂

    Comment by Jack B. Nimble | June 8, 2010 | Reply

    • Jack,
      I remain constructive on the market. I see at least 3500, and I think 3800 remains a possibility because earnings have momentum from the growing GDP of the country. I think that the U.S. will also go better from today, possibly ending the year around 11,000 in the DJIA.
      I do not agree with the idea that financial markets do not decouple; there is a lot of evidence of non-correlation.

      Comment by Gus Cosio | June 9, 2010 | Reply

      • thanks again Sir Gus! 😀

        Comment by Jack B. Nimble | June 9, 2010

  4. my example is paxys, i have 450k @ 3.60 cost average. i know thats a lot of money to put in a 3rd liner, well i was a beginer then and still is. If i sell paxys now @ 1.80 i will lose money, and if i dont sell it, i still lose money. what shoud i do, my broker advises me not to sell, just keep it until the markets go up, but i fear that if the market does go up. It will still be a laggard and the price of paxys will still be below my cost average. What should i do?

    Comment by gerald | June 8, 2010 | Reply

    • The show is not over until the fat lady sings or the fat insider/director sells….i love chasing the rally….sell your paxys buy AP or URC…..

      Comment by jake | June 8, 2010 | Reply

    • Hi,

      I dont follow Paxy but allow me to make a few comments.

      At its end 09PE it is trading at 8.5, P1.80 per share. Its first qrt earnings is flat. If you have bought at years ago at 3.60 meaning you paid 17x PE. Its more expensive than buying into glo,urc,JGS, even a bit into sm.

      My point is, nobody will know where the stock market will be headed or whether a stock will go up or not. Earnings can be a driver or who knows, somebody will acquire it and pay at 20x PE in whick case you can make profit.

      But rhetorically, it stock with low 2009 PE, but clearly defined and excellent growth prospects are being sold down, how will investors treat Paxy?

      Again it will be your decision, regards.

      Comment by alex | June 9, 2010 | Reply

  5. bought paxys 450k @ 3.60. should i cut my losses and sell it now? pax trading @ 1.80. my broker advises me not to sell at a loss and just keep it till the markets recover. what should i do?

    Comment by gerald | June 8, 2010 | Reply

    • Gerald,

      I sympathize with you. I also bought a relatively big volume of PAX @ 3.40, then averaged down to 2.9. Sold my portfolio at a 6 figure loss. It is a good thing my over all holdings is still up 1% over my December 31, 2009 portfolio at this low current prices. Some say, why not cash it and buy stronger stocks, which will accelerate your moving up when we are in better times while some say, wait until it moves up. Well it is really one’s own decision, but in my case, I decided to cash and use it to buy stronger stocks. Hope you make a correct decision.

      Nel

      Comment by Nel | June 9, 2010 | Reply

    • Gerald,
      Why don’t you look more deeply into Paxys’s financial statements and see if there is a chance of getting out. Essentially, the way out for investors is price appreciation or dividend yield. The F/S should tell you whether one or both of these routes are there.

      Comment by Gus Cosio | June 9, 2010 | Reply

  6. Hi sir Gus, I think PSE will rise to 3700..We are right now in a stubborn bull market…

    Comment by jake | June 8, 2010 | Reply

    • I cannot disagree with that expectation, Jake.

      Comment by Gus Cosio | June 9, 2010 | Reply

  7. sir gus,
    the rain will continue for june…july…august…meaning power sector stocks will start to go up (i hope edc will duplicate AP in the near future)… then, the fat lady will sing…lalala hhhmmmmmm hehe

    did u get the “danggit” sir gus, its with my brother at diliman.

    Comment by draco23 | June 9, 2010 | Reply

    • Hey Draco,
      I love danggit but diliman is a little out of my way. Thank you anyway. Just ask your brother to enjoy the danggit.

      Comment by Gus Cosio | June 9, 2010 | Reply

  8. I think stock will rise until friday then will go down next week..100% stocks right now….

    Comment by vel | June 9, 2010 | Reply

  9. Im stuck with MPI@3.10, fgen@10.75 and meg 1.34….paper gain BDO and JGS….

    Comment by Jim | June 9, 2010 | Reply

    • no more money to buy stocks…..

      Comment by Jim | June 9, 2010 | Reply

    • Jim,
      3.10 is not a bad price for MPI nor is 10.75 bad for FGEN. We’ll get through this bumpy ride in the market though it could take some time.

      Comment by Gus Cosio | June 9, 2010 | Reply

  10. Hi sir Gus,

    Why is BPC trading at a very low P/E ratio?

    Thanks!

    Comment by Mike W | June 9, 2010 | Reply

    • Hi,

      If I may, companies under BPC are not doing that well and it had huge debts before. It only went down a bit after they sold MER their crown jewel.

      While ABS and FPH maybe doing well, buying FPH through BPC maybe a tall order after all you can buy it direct.

      Growth for Byntel and the cable tv is not that good either. Im not sure how the Lopezes will drive BPC going forward.

      Thnks

      Comment by alex | June 9, 2010 | Reply

      • Alex,
        My view on BPC is that it is trying to redeem itself from it inglorious past. You’re probably right that FPH may be a better proposition in the long run. In the short-run, trading activity in BPC warrants that serious traders have a look for trading opportuinties. it’s not a bad company anyway.

        Comment by Gus Cosio | June 9, 2010

      • Hi Alex,

        Thanks for your insights on BPC.

        Comment by Mike W | June 9, 2010

    • Mike,
      What you are seeing is its trailing PE or its earnings in the previous period when Meralco was sold by First Philippine Holdings. The forward PE is not as low.

      Comment by Gus Cosio | June 9, 2010 | Reply

  11. Hi Gus,

    I got TEL at an average cost of 2500 and it has gone down to 2390. Do you think the price of TEL will go back to 2535 levels soon? Also, is GLO a good stock to invest in now since it is down to 865 or is DGTL better? There are so many stocks to choose from but am sticking to PNB and MBT for bigger amounts. Which among PX, EDC, DMC, AP, SCC, AGI and URC are good buys at this time? Thank you.

    Comment by Bobby | June 9, 2010 | Reply

    • Bobby,
      I own some TEL at 2475. I think it is a good stock particularly for yield and as a proxy for the entire market. However, telecom seems to have fallen out of fashion. I do not think TEL will go lower that 2300. I do not mind holding it because it pays more than 200 pesos a year dividend or a yield of 8%. If the index goes up to 3500 which I think it will, TEL could be trading at 2600. As for GLO and DGTL, I would favor DGTL because Sun cellular is eating away at Globe’s market share.

      All of the stock you mentioned are good buys. I would rate DMC as the strongest.

      Comment by Gus Cosio | June 9, 2010 | Reply

      • Hi Sir,

        Dgtl seems to have risen quite fast, what does this seem to indicate? Some buyers though are momentum traders.

        Thanks

        Comment by alex | June 9, 2010

      • Alex,
        DGTL has been out of favor for a long time. It is just catching up with the rest. Also, it is eating away at Globe’s market share of the cellular market.

        Comment by Gus Cosio | June 10, 2010

  12. Sir,
    I havent been following PNB much. Do you think the merger with Allied has already been factored in the current price? What would be the biggest driver for it to catch up with other banks?

    Regards

    Comment by Mark Anthony | June 9, 2010 | Reply

  13. Sir,
    I havent been following PNB much. Do you think the merger with Allied has already been factored in the current price? What would be the biggest driver for it to catch up with other banks?

    Comment by Mark Anthony | June 9, 2010 | Reply

    • Mark,
      In my measure, the Allied merger is not yet in the price. The biggest driver is valuation; PNB is undervalued with or without the merger. That is why it is a very good bet.

      Comment by Gus Cosio | June 10, 2010 | Reply


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