Gus Cosio says so

Ideas on the Philippine Stock Market

Patience for lunch

6:45 pm  Wednesday  9 June 2010   Philippine Stock Exchange  3254.83  (-0.593%)

The market came down by 19 points today in spite of an improvement in Wall Street.  The past two days, the local market was up in spite of huge declines in New York.  Are we decoupling from the major markets?  For one thing, our market, while strongly influenced by Wall Street, does not necessarily follow the trend in the DJIA or the S&P 500.  In fact, over the last three months, the correlation coefficient has fallen far below 1.  The PSEi had outperformed the DJIA by 13 % on year to date measure.  In other words, the PSEi has moved up 6 % YTD while the Dow has dropped 7 % YTD.

There is even greater impetus for our market to go better in the coming days due to enthusiasm coming from today’s proclamation of Aquino as president-elect.  Political stability and smooth government transition has always been positive for any market, most especially ours.

Economic indicators are even being supported by monetary developments with M3 moving up 12.4% in April.  The BSP has not really been pumping money into the system.  As a matter of fact, they have been sucking out money through the special deposit accounts (SDA), yet money supply is growing.  This only means that GDP/GNP growth has been creating money for the economy, and I think that is good for stocks.

What is important for investors and traders to do now is to closely observe price actions of each stock.  When the market is ranging as it has over the past 3 months, it is not very difficult to identify buy entries and profit taking levels.  Here are a few observations and ideas.

MBT looks to be moving sideways for the next couple of days and strong support is 55.  BPC is showing strong support at 3.60 but sentiment on the stock might take it close to 4.  FGEN doesn’t look like it is going anywhere in the next few days; those who follow this stock should buy it on dips rather than chase prices higher.  Its sister -EDC – is a strong buy at 4.65, to my mind.AP and AEV will likely be stuck in the range just below their recent highs.

JGS,RLC, URC and DGTL are stalling at these levels, but because of their underlying strength, I’ll look for good dips for buying opportunity.  AGI will probably skyrocket in a few weeks.  Try to buy this stock on weakness – below 5.50 – because I hear earnings are starting to fly.  SM, SMDC and SMPH should also be bought on dips.  I would be careful, however, on PIP because I think it has limited upside.

Having said all that, I think it will still be useful to follow the developed markets.  In my opinion, China’s stock market is starting to stabilize after a full year of decline.  I think that will be good for our market since China and East Asia(ex Japan) now accounts for 42% of total Philippine exports. Things could get boring as price action would require a lot of patience from investors.  Remember that there are no free lunches and often times the price to pay is our own patience.

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June 9, 2010 - Posted by | Financial markets in Asia

40 Comments »

  1. Hi Sir,

    I have been closely monitoring JGS, MBT and PNB for quite some time now. I have also been doing some research and that these companies have major actions in line this year. With what happened today and probably within the week, I saw the opportunity to take positions due to the bargain prices. I am now thinking if I should pump in more funds because I know in the long run, these stocks would surely rise? It is said that we should not put most of our eggs in one basket but with the trend of these companies (such as the merger for PNB), is this a leap worth taking? I believe that if you wanna earn big, you have to put it on the line. But with whats happening in Europe, maybe I should think otherwise?

    Thanks!

    Comment by Andy | June 9, 2010 | Reply

    • Andy,
      Remember what Mr. Neri said during the NBN-ZTE senate investigations: “moderate your greed.” Actually, you have good diversification in your holdings. I notice that you do not have a power sector stock in your portfolio. Have a look at EDC or FGEN or even DMC which has both power and water.

      Comment by Gus Cosio | June 10, 2010 | Reply

  2. Hi Tito Gus, Is leveraging a good idea now? Im fully invested right now…

    Comment by kim | June 9, 2010 | Reply

    • Kim,
      I do not like leveraging.

      Comment by Gus Cosio | June 10, 2010 | Reply

  3. Hello again Sir Gus!

    in your previous blog post you said: “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”.

    Would you be able to hint as to what would be your signal(s) for the “show to be over” such as economic indicators, market action and such?

    Thanks again, sir!! more power! 😀

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

    • Jack,
      The show is over when everybody is happy and very bullish. That is not yet the case because you still have a lot of skeptics.. I choose to be counter intuitive when it comes to these thing.

      Comment by Gus Cosio | June 10, 2010 | Reply

      • Thanks again Sir Gus! 😀

        Comment by Jack B. Nimble | June 10, 2010

  4. Dear Sir Gus,

    excellent read on “PATIENCE FOR LUNCH”…i believe it to be a very good advice. Not being to keen on divesting fully right now but definitely keeping a close eye on selected issues. With respect to URC, do you think the coming school days will have an effect on its current price considering that its earnings will have more room for growth or has it reached its peak? Your thoughts on the matter sir?

    More power and God bless!

    Rico Fernandez

    Comment by ENRICO FERNANDEZ | June 9, 2010 | Reply

    • Rico,
      I feel that URC has another 15 to 20 percent left in the price. Our estimate of its forward PE is single digit. It has a strong industry presence and I see consumer spending growing further as the year wears on.

      Comment by Gus Cosio | June 10, 2010 | Reply

  5. Dear Sir Gus,

    I really like your blog / posting and am really interested in your thoughts and analysis in the Philippines stock market.

    My question is that what is the possible reason why PF value has been growing astronomically lately? And will it grow more, stay at that price or start going down?

    Thank you very much Sir.

    Comment by joseph | June 9, 2010 | Reply

    • Joseph,
      PF is a very illiquid stock. You can get stuck with it even if the price moves better. The reason for its rise is because San Miguel is selling their stake to another major player in the Food industry. It is a risk that I am not willing to take. I would rather wait and learn the new story for the stock before touching it.

      Comment by Gus Cosio | June 10, 2010 | Reply

  6. Sir Gus,

    I sold my FGEN at 10.75(near resistance) and bought MBT at 53(below support). Any thoughts on this move sir gus?

    Comment by JohnTheMan | June 10, 2010 | Reply

    • John,
      I think those are excellent moves.

      Comment by Gus Cosio | June 10, 2010 | Reply

  7. sir gus,

    my mpi and pnb is very slow for the last two weeks, i believe that pnb has huge potential specially this 3rd quarter and mpi inspite of overwhelming good news still not flying… any insights on this?

    on the other hand, i conducted my own survey…hehe glo, tel, and dgtl to users, i believe that sun cel claim (7 out of 10-choose sun) is true, is it wise to buy dgtl at 1.6 level? considering that the increase is very drastic and what should be the value of dgtl on your opinion given its profile? thanks sir

    Comment by draco23 | June 10, 2010 | Reply

    • Draco,
      I think that DGTL is worth a serious look even at these levels. It has been a very neglected stock, so it is just in a recovery stage. There could be a major move ahead, but that really depends on the information which the company discloses.

      Comment by Gus Cosio | June 10, 2010 | Reply

      • Thank you Sir Gus for your thoughts on JGS.

        Comment by alex | June 10, 2010

    • Hi Draco,

      What are your ideas on JGS at the moment? Perhaps you can share if you have research on this as well

      Thanks

      Comment by alex | June 10, 2010 | Reply

      • Alex,
        I do not have hard research on JGS. I just follow available public disclosures. What guides me in JGS is my view that URC and RLC are both showing 11% growth in earnings over the next 12 months and both have 10X PERs. Then You have DGTL who is eating away Globes market share and the potential unlocking of Cebu Pacific value when it goes IPO later this year. Then you have the NAV contribution of UIC in Singapore. I think JGS should remain firm.

        Comment by Gus Cosio | June 10, 2010

  8. Is DGTL’s play over? I have a lot of DGTL and i was wondering if i should hold or sell.

    Comment by Mark | June 10, 2010 | Reply

    • DGTL is a good stock bought at 1.52 planning to sell next week.

      Comment by Jim | June 10, 2010 | Reply

      • Jim,
        You could ride DGTL a little longer.

        Comment by Gus Cosio | June 10, 2010

    • Mark,
      I think DGTL has a lot of room to move higher.

      Comment by Gus Cosio | June 10, 2010 | Reply

  9. If globe profit is going down i think Ayala corp will go down also cause Globe is the cash cow of AC …

    Comment by Jim | June 10, 2010 | Reply

    • Jim,
      I would rotate out of AC and buy either AEV or MBT.

      Comment by Gus Cosio | June 10, 2010 | Reply

    • Sir Gus, Jim,

      In a GLO annual report about 3 years ago, it said that glo is paying off some loans that are high interest paying in preparation for decline in ARPU bought about by intense competition.

      There is indeed drop in ARPU and GLO is if you noticed borrowing from banks to add to its operating cash because it is paying generous dividend and yet still have to make capex especially for broadband.

      I wont presume to know better but I think too much share buy back seems to indicate that company is share price oriented, and it cant find good use for its cash that can grow its earnings. Investors should be the one buying the company shares.

      Thanks

      Comment by alex | June 10, 2010 | Reply

      • Alex,
        Share buy-back is one way to reward shareholders. It raises earnings and dividends per share; earnings and dividends are distributed to fewer shareholders.

        Comment by Gus Cosio | June 10, 2010

  10. Sir Gus,

    I noticed that the quality of research of first metro is getting better after several months. I hope you can mention it to the concerned persons to keep up the good job there. Also to keep on being imaginative in the research and the choice of companies.

    Thanks

    Comment by alex | June 10, 2010 | Reply

    • Thanks, Alex. I’ll let them know.

      Comment by Gus Cosio | June 11, 2010 | Reply

  11. Hi Sir Gus, I’ve noticed that for almost the whole week our pse has been on the red level in spite of the upbeat attempt of both the US and London trading. Even the other asian markets are green but ours seem to be at bay. Are we just positioning for a recovery? and another volatile trend? your title seems to be timely…he he he…any idea where we are heading for the coming weeks…?

    Thanks and more power

    Comment by newbie | June 10, 2010 | Reply

    • Newbie,
      We are separating the men from the boys here. The seasoned investors are focused on the forecast earnings of the solid stocks and the time-tested measures of PE and PB. Those stocks that make the score will be bought on weakness by the insightful investor from the weak handed ones who will be running scared.
      We are still facing a bumpy ride which will not be suitable to the faint-hearted.

      Comment by Gus Cosio | June 10, 2010 | Reply

  12. I think MBT,BPi and AGi will go up in the coming days….

    Comment by Carlo | June 10, 2010 | Reply

    • Carlo,
      I agree although BPI would have limited upside. it is more of a defensive stock.

      Comment by Gus Cosio | June 11, 2010 | Reply

  13. I big rebound will happen today many will chase any rally..I like Fgen,smph , MBT and AEV. avoid Glo and Ayala corp and also digitel very overbought.

    Comment by mitch | June 11, 2010 | Reply

    • Mitch,
      I totally agree with you. I would suggest you also revisit PNB and EDC.

      Comment by Gus Cosio | June 11, 2010 | Reply

  14. Sir Gus,

    I bought FGEN at 10.50 a few weeks ago. I’m thinking of selling it at 10.75 or 11.00 for minimum profit, or of holding it long-term until it increases value. What would you suggest sir? Thank you very much, I am a newbie on stocks and still need to get a feel of the market.

    Comment by newinstocks | June 11, 2010 | Reply

    • Newinstocks,
      FGEN would not be a bad core holding in your portfolio. be patient with it because I think by year end, FGEN can go up to 15. It is trading at only 8X PE which means it is very cheap.

      Comment by Gus Cosio | June 11, 2010 | Reply

      • Thank you Sir Gus! I hope it does go up to 15! 🙂

        Comment by newinstocks | June 11, 2010

  15. Hi Gus,

    I think what the PSE has been doing the past couple of days is merely consolidation. It is building a strong platform from which to propel itself for a strong and sharp ascent. I would liken what has been going on to what happened with AP in the first 2 weeks of April. It stayed within the 12.75-13.25 range but when it finally broke out it went to as high as 15.25 within a few days. Hopefully, the world markets stabilise so that there will be no hindrances to the PSE’s climb towards 3,500

    Comment by richard | June 11, 2010 | Reply

  16. i have to face the music, na its my birthday am getting older… lost big money sold some of my paxys and now am shifting to mpi… hope to make up for the losses???

    Comment by gerald | June 15, 2010 | Reply

    • Gerald,
      I think if you try to get the feel of MPI, there is no reason not to make up the losses.

      Comment by Gus Cosio | June 16, 2010 | Reply


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