Gus Cosio says so

Ideas on the Philippine Stock Market

The nervous and the strong willed

7:20 pm  Thursday   17 June 2010   Philippine stock Exchange Index  3313.52  (+0.1775%)

What do we think is the market telling us when it is as volatile as it was over the last 3 trading days.  Tuesday was a price surge arising from stability and strength in the major markets.  Wednesday saw the market opening very strong and rising by 47 points but closing up 29 points only.  Today, Thursday, the index closed 5 points higher but had changed directions practically every quarter of an hour.  The breadth of today’s volatility is quite sanguine, however.  The difference between highs and lows was 15 points.

I think that participants is trying to gather conviction.  Many stocks present very good valuations but prices have come up a lot for many of them, particularly in the power and banking sectors.  With the threats coming from overseas, it is not surprising that players want to pocket their profits.  Looking at stocks like DGTL and JGS, for instance;  these stocks have lagged for sometime until traders realized that they were cheap to comparable counters.  They have had sharp rises over the past few weeks that profit taking is very tempting.  The same argument can be made for  a number of other stocks notably those that have power and infrastructure, stocks like DMC and EEI.  Looking further, I think that the market is base building at these levels considering that the second quarter is about to close.  Earnings reports will be just over a month away and it may be worth the wait for both new buyers and sellers.  Anyway, it looks to me that we have a market that is nurturing some pent-up demand, so I am comfortable that prices are still headed better.

MEG seems to have shaken off the anxiety coming from the last installment of their rights issue.  It should resume on its march to 1.60 to 1.75.  Third liner RFM has seen some buying surges.  I guess the company will try to recover at some point, but I will be careful with this stock as many had been burned badly in the past.

There was a large cross of MBT today at 56 for around Php 1 billion.  I heard that they were foreign funds who changed hands on the stock.  I view this as good support for the stock where a profit taker was met by a big buyer at these high levels.  It give credence to my view that MBT is headed to my 70 target as well as to my notion that MBT can be used as a proxy for the entire Philippine market.

In the international scene, Spain which is one of the so-called troubled sovereign borrowers was able to raise 3.5 billion euros ($4.3 billion) of 10-year and 30-year bonds at yields lower than the prevailing market rates. The bids were as much as 2.45 times the securities on offer, assuaging concern that it would face difficulty meeting bond repayments.  I think things may be normalizing in Europe already.   Most European stock markets are up as of this writing.  In Asia, The Hang Seng has been steadily climbing and while the Nikkei was down slightly today, it remains up for the week.  I can’t help to think that the nervousness that has gripped the equities market last week has been eased and the outlook has become brighter.

I think we should be ending the week on a positive tone.  I think the recent volatility is simply telling us that positions have passed from the nervous to the strong willed.  That could make the support at this level of the index very firm.

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June 17, 2010 - Posted by | Financial markets in Asia

17 Comments »

  1. Thanks sir for this recent write up. I believe that the lesson of the strong willed and the nervous is very important. It seems to be that at this stage focus seems to have shifted to growth of companies going forward.

    Comment by alex | June 17, 2010 | Reply

  2. thanks very much sir…. your write up is very much of help to a neophyte like me….

    Comment by tatels | June 18, 2010 | Reply

  3. Hello Gus,

    Good day!

    Just a follow-up question to my question on HLCM in your last thread. I was wondering if you would consider HLCM a defensive stock in light of its consistent dividends? Thanks

    Norman

    Comment by Norman Go | June 18, 2010 | Reply

    • Norman,
      I see HLCM as a special situation stock, not really defensive. An example of a defensive stock is MWC or even BPI.

      Comment by Gus Cosio | June 18, 2010 | Reply

  4. I like 3M stocks..Metrobank, Manila water and Megaworld…

    Comment by Ragingbull | June 18, 2010 | Reply

    • Hi Ragingbull,
      I cannot disagree with you except that MWC is probably not a bullish choice. It is a a classic utility stock and in the past year or so it has behaved pretty much like a utility stock – very stable even when the market is strong. Perhaps when MWC has done its move, you should shift to another ‘M’ such as MER or MPI.

      Comment by Gus Cosio | June 21, 2010 | Reply

  5. Bought MEG earlier @ 1.40.
    Breakout na ba MEG?
    Do prices of stocks drop during ex dates? MEG’s ex date is on July 1. I’m a bit worried if i should hold this long term. If so would it drop big?
    I would really appreciate your advice! TIA!

    Comment by Mark | June 18, 2010 | Reply

    • Is it cash dividend or stock dividend that’s when prices drop significantly?

      Comment by Mark | June 18, 2010 | Reply

      • hi mark, last year Meg starts going up from .90 cent(june) to 1.74(Oct) it reached its peak at around mid-october if you want to be safe you can sell it before mid-October…

        Comment by Ragingbull | June 18, 2010

      • Mark,
        cash and stock dividends can be mathematically calculated. The adjustment in cash dividends is almost exactly calculated while stock dividends have valuations embedded in the price adjustments. The unforeseen factor in the price adjustment is how the sentiment for the stock is after the dividend is declared.

        Comment by Gus Cosio | June 21, 2010

    • Hi Mark,
      MEG has always been a trading stock which means it is oftentimes volatile over a wide band. I think that dividend effect adjustment would only be 0.02. MEG is really a trading stock which trades over a wide high and low band. Try to take advantage of that band.

      Comment by Gus Cosio | June 21, 2010 | Reply

  6. novice trader here….thanks po for your insights…

    Comment by Ricky Castro | June 18, 2010 | Reply

  7. I am an ofw based in dubai working for KAB INTERNATIONAL. My bosses have recommended to look into the philippine market and they have particularly been taking an interest in PNB. (I also recommended it to them of course). They say that among the banks it is one of the most undervalued and it could go up anytime soon. Judging by its normal PE ratio during pre-2008 times, we can see that this stock still has a long way to go. Foreign funds could be diverted to this stock if all goes well. The primary roadblock right now is actually the MERGER. Some investors are waiting for the merger to be more definite and are holding off their buy orders even though the stock is very undervalued, this is because they are waiting for dips in the stock to occur. Definitely though they expect this stock to go up later this year. What do you think sir gus about my bosses’ analysis?

    Comment by analyst | June 18, 2010 | Reply

    • Analyst,
      In my calculation PNB at 29 is trading around 0.58 price to book ratio. This means that if the situation were more ideal, it should be worth closer to 50. The merger with Allied should bring the the price closer to book value because I do not think Allied will value itself below book value. there is no reason to.

      Comment by Gus Cosio | June 21, 2010 | Reply

  8. Buy Blue chip Laggard stocks like MWC,BPi,Megaworld,EDC,SMPH and Fgen…

    Comment by jake | June 20, 2010 | Reply

  9. Hi tito Gus, Im planning to buy a property stocks if a profit taking happens next week. which is better RLC,SMPH, Ayalaland and MEG ? Thnks in advace and More power…

    Comment by nadia | June 20, 2010 | Reply

    • Hi Nadia,
      My choice for property would be RLC and SMDC. If you like ALI, I would pick it up ALI on weakness rather than chase it.

      Comment by Gus Cosio | June 22, 2010 | Reply


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