Gus Cosio says so

Ideas on the Philippine Stock Market

Coming to our side

9:30 am  Wednesday 16 June 2010  Philippine Stock Exchange Index 3319.50 (at the open)

The Dow, S&P and Nasdaq all closed higher overnight in new York.  Some analysts believe that the rally that started in the beginning of June has been renewed as the high-range closes on all three indices sets the stage for a steady to higher prices for the rest of the week.   If the U.S. markets extend Tuesday’s rally into Wednesday, it could squeeze out a lot of the bearishness that had been brought about by the European sovereign debt crisis.

We can agree or disagree with that view, but the reason I mention it is because while the Philippine market has not been completely correlated to the major markets, local investors inevitably react to major market moves.  What I see as an opportunity here is that a number of stocks are trading in oversold levels.  The ones I see are EDC, FPH, MPI and PNB.  I think there may be a lot of skepticism on EDC due to the earnings drag that people foresee in their acquisition of the Bac-Man generating facilities from Napocor.  One reason why I think it is worth the trade is because all of the foreign brokerage houses are all focused on the power sector as the main story in the Philippine market.  Of course the favorite has been AP and I have no reason to disagree.  However, i think that most people will agree that the long-term story on EDC remains intact.  The recent price moves may be seen as an adjustment to the lower earnings per share expectation on EDC.  In my view, even if they downgrade the earnings by 15%, at a price of 4.50, the stock will still be trading around 11X PE which is not so bad for a very liquid stock.

MPI could also end up to be a profitable trade as it is trading close to the lows of what I perceive to be its trading range of 2.65 – 3.25.  MPI is an infrastructure play that may seem to be slow-moving to some, but the stock is a good trader for short-term traders.  It’s long-term prospects, nonetheless, cannot be ignored particularly because it owns management control of MER.  Incidentally, MER should also be a good short-term trade.

While the excitement will continue to be in the power sector, there is the view that the broad market will give benefit to banks as a lot of large ticket financing is expected in the first year of the Aquino administration.  Do not forget that in all presidential elections since 1992, the market had gone up at least 14% in the 12 months following the elections.  I will continue to see favor in MBT and PNB while SECB, CHIB and even RCB would enjoy relative firmness.  The reason why I am not too hot on BPI and BDO is because these stocks are quite expensive per my valuation.

My message is really that we will be seeing a favorable market now that the global markets are promising some hope.  Telcos, property and some theme plays like AGI and JGS would also stand very good chances of giving good trading profits.  Just stick to good fundamentals because the market looks to have come back to our side.

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June 16, 2010 - Posted by | Financial markets in Asia

28 Comments »

  1. Looking good so far =)

    Comment by wren | June 16, 2010 | Reply

  2. Hello Gus,

    Good day! Hope all is well with you… A few weeks/months ago i noticed that you mentioned CMT along with HLCM in one of your entries. How do you think HLCM is looking at the moment? It’s future prospect? Thanks

    Norman

    Comment by Norman Go | June 16, 2010 | Reply

    • Norman,
      the beef on the cement companies is that they will definitely grow earnings this year and for the next three years. The problem is that the cement stocks – CMT, RCM and HLCM are all illiquid so they will always trade at discounted PEs. They are not bad for buying on dips and for 3 to 6 months holding periods.

      Comment by Gus Cosio | June 16, 2010 | Reply

  3. Greetings. APC holding base at supports 0.49-0.50, but volume has significantly diminished. Would apprec8 your thoughts sir Gus.

    Comment by jojo | June 16, 2010 | Reply

    • Jojo,
      I’m keeping some APC on hand and I’m a would be buyer at .49 or lower. Anyone buying this stock must have enough patience to wait it out. It could take weeks or months but it may be worth the wait.

      Comment by Gus Cosio | June 16, 2010 | Reply

  4. what’s your take on edc, rfm, ap, aba, and ani?

    which among these are good buys at their current levels?

    Comment by Mark | June 16, 2010 | Reply

    • Hi Mark,
      I like EDC and AP, but for maximizing return today, I’d go for EDC. I have no clue on ABA and ANI, but I’m not negative on them. I’ve read that RFM may start to be doing well, but you have to surmount its illiquidity.

      Comment by Gus Cosio | June 17, 2010 | Reply

  5. I like MWC,BPi and gma7….

    Comment by karl | June 16, 2010 | Reply

    • Karl,
      Those are excellent companies, but I am not sure that they will perform in the short-run. I think you can put those stocks into a core portfolio. For 2 months view, I would go for EDC and PNB. For a 6 months view, I would go for MBT and DMC.

      Comment by Gus Cosio | June 17, 2010 | Reply

      • Sir Gus,

        What are your industry picks for the long term? Like 1-5 years hold?

        Comment by Norlan | June 17, 2010

  6. Hi tito Gus, I made a good profit (16% in 3 weeks)today in DGTL thanks very much…..goodluck and more Power…

    Comment by jenny | June 16, 2010 | Reply

    • Very good, Jenny. Be sure to give a good think to your next position.

      Comment by Gus Cosio | June 17, 2010 | Reply

  7. Hi Sir,

    What are your thoughts on JGS? It closed today at 16.5 but still, a lot are purchasing this stock at a high. I almost placed a bid but I felt that it would pull back soon to the 15 level (which I feel comfortable buying at). Is this just a small tickle or do investors see a continuous rise in the following weeks?

    Thanks!

    Comment by Joshua | June 16, 2010 | Reply

    • Joshua,
      I think the market will be positive for the rest of this week. I think June will be good for the market as it has gathered some momentum and stock prices are still reasonable. JGS is in a new ballgame which could take it all the way to 20.

      Comment by Gus Cosio | June 17, 2010 | Reply

  8. Sir gus,

    Sir have you tried selling a stock to early?
    In my case i sold JGS at around 11% gain, thinking it would consolidate for such a steep climb, but it seems it just would’nt stop climbing upwards. Your thoughts would be highly appreciated sir.

    Comment by JohnTheMan | June 17, 2010 | Reply

    • Hey John,
      Do not cry over spilled milk. If you sold at a profit, even if you sold too early, you did nothing wrong. Treat every trade on its own merit.

      Comment by Gus Cosio | June 17, 2010 | Reply

    • Hi John,

      If I may, in a stock’s climb there usually is a factor. Can be earnings or a “glamor” being added to its valuation. Initial climb and the volume that goes with it seems to indicate that the stock is being noticed by investors. There are momentum and long term investors buying.Momentum buyers will sell at a profit, sometimes same day. But those other investors wait it out and invests with the notion that as the company increases income over the quarter or the years,share price will go up.

      After a climb there is a tendency for price to dip as the weak hearted as Sir Gus will say are purged out.Those that may remain have longer investment horizon.

      Since you sold at a profit anyway then you can always look to reinvest.

      Regards,

      Comment by alex | June 17, 2010 | Reply

  9. Property stocks very hot ….Megaworld going up

    Comment by pits | June 17, 2010 | Reply

    • Pits,
      I would not generalize on property stocks. I see only normal returns on property in the near term. For MEG, the selling overhang has gone through already, that is why it has started to go.

      Comment by Gus Cosio | June 17, 2010 | Reply

  10. Megaworld will be going to 2/share by 4th quarter 2010..

    Comment by pits | June 17, 2010 | Reply

    • pits,

      What is fueling your optimism with MEG? Would be great if you share it to us.

      Comment by JohnTheMan | June 17, 2010 | Reply

      • Maybe because of REIT and also very oversold since April..

        Comment by carla | June 17, 2010

  11. HI Gus!
    Is it still safe to add more AP? And what is your tp for MEG?

    Comment by Mark | June 17, 2010 | Reply

    • I’m also thinking of going “all-in” on AP and forgetting it. Maybe I’ll come back to it after a year or two. Would that be a wise move?

      Comment by Norlan | June 17, 2010 | Reply

    • Mark,
      AP will be strong until next year simply because it has all these hydro plants plus a large degree of control of the Visayas grid. AP will have some pull-backs, but I do not discount further earnings upgrades in the future.
      MEG, I think, is just proceeding with its trend now that investors have priced in the next rights installments paid this month.

      Comment by Gus Cosio | June 17, 2010 | Reply

  12. what’s also your take on at?

    Comment by Mark | June 17, 2010 | Reply

    • I hear AT has been operating profitably.

      Comment by Gus Cosio | June 17, 2010 | Reply

  13. Sir Gus,

    What do you think of FGEN? I began acquiring this at 11.50 then averaged down. My average price now is 11.23, with a 10% paper loss or rougly P38K. I see that it has good fundamentals with its 2010 Q1 EPS at 89% of its whole 2009 EPS. Also, its NFS is going down, and yesterday it was only 1.5 million. Its book value is P14/ share. This is about 17% of my portfolio. My other stocks are EDC, MAB, MPI, JGS, BPC, LOTO, DGTL, MEG and PNB.

    Thank you. I have been guided much by your write ups and your answers to the many questions posed to you. More power.

    Comment by Nel | June 17, 2010 | Reply


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