Gus Cosio says so

Ideas on the Philippine Stock Market

Getting used to

7:00 pm  Wednesday  28 July 2010

A broker friend was telling me today that a number of floor traders are still disoriented with the new fluctuations in the now present system.  Many of them have been so used to the larger fluctuations that they cannot yet feel comfortable with the almost seamless fluctuations that we are seeing now.  Honestly, I think many on-line traders are probably as disoriented as those in the trading floor. A fund manager was actually telling me that bid and offers appear to be all over the place, and he senses that both buyers and sellers do not really know how to strategize their order posting in this new system.

Incidentally, one very seasoned broker said to me that if you are a real investor, your would easily adjust to the new system nad it actually allows you to accumulate your position at closer prices.  I am very much in agreement.  I think with the value turnover in the market coming back, those that have given their trading strategies deep thoughts already have the hang of things.

There was a volume and price spike in FLI today.  I do not really know what is going in FLI, but when you look at it, the fluctuations in the stock has not changed much with the new system.  You will not be disoriented at all.  I think the same is true with MEG and the stocks that are around the one peso level.

I managed to follow the price of PNB today for a short while as I was in and out of my office and could not steadily access the internet for active stock prices.  I am quite pleased that profit taking is going on in PNB.  It looks to me that 40 could be the stong support, and those who were anxious to being left behind when it shot up to 43.50 can now buy cheap.  At 40, there is at least a 20% upside which is almost certain.  The risk reward profile remains decently generous.

For those who agreed with me that MPI was cheap below 2.60, I think you should be reaping the rewards today.  This remains to be a trading stock and will trade in ranges.  Just remember, this is a stock that has a market capitalization that is big enough to invite trading, and it is also very widely distributed that liquidity will always be available.  This stock has a long way to go, and astute traders can make money on its volatility.  Longer term players can always buy it on weakness, and you can surely get out without big losses.  In fact, if you can identify the range, it can be a steady source of trading profits.

Anyway, I hope everybody is plotting strategy.  I continue to think that the market will be favorable although it is not yet at a point that it will run away from us.  Try to trade smart.

July 28, 2010 Posted by | Financial markets in Asia | 106 Comments

In the back seat

12:15 am  Wednesday  28 July 2010

I am sitting back from the market for a while since I will be on the road again this week.  I’ll be doing some investment briefing to some people in Cebu on Thursday and Friday.  The good thing about detaching yourself from the market for a few days is that you can take a longer and wider view of what the outlook could be.

One thing that I found out from one of my research sources is that if we had decouple completely from the DJIA in the 2nd quarter, in these past few weeks of July, our correlation with the Dow is back to a level which is even slightly higher than in the first quarter.  I guess because the U.S. market has been getting a series of positive earnings surprises,  the constructiveness our own market was being reinforced.

When I try to take a look at the domestic front from both the macroeconomic perspective and the earnings forecasts of the stocks I follow, the landscape looks quite encouraging.  The thought makes it easy for me to just hold my positions while I try to ignore it for the next few days.

For those who may be curious of my plan for my PNB position over this week, I feel very comfortable holding it because, having thought about it earlier today, I would have been happy to buy the stock again today.  For stock like DGTL or MBT, they are also at levels that I am comfortable with, although i would like to pick up MBT perhaps 2 pesos lower.

I am also a bit surprised that TEL is cheap in Manila compared to its ADR in New York.  It may be because people are now expecting the peso to start gaining on the U.S. currency.  It is no wonder, as well, that RCB has spiked up.  It will be paying a second dividend for 2010 in the coming weeks.  Such a declaration gives impetus to the notion that quarterly earnings are rising.

Anyway, I’ll share more of my thoughts when I find some time while at rest during the week.  In the meantime, be careful, but be involved.

July 27, 2010 Posted by | Uncategorized | 11 Comments

The new trading system

6:50 pm  Monday  26 July 2010

Today was not a typical day at all.  Personally, my rhythm in following local stocks has become syncopated and I am still a bit uneasy with the new fluctuations.  It could take some time before getting used to.  The problem really is training the mind on how the new prices work and how your bid /offer strategy would be when you are getting in and out of the market.  On paper, it looks very simple; but when you’ve gotten used to doing things one way for most of your stock trading life, it does not feel that simple.  It probably will be after a bit of practice.  That was why brokers who seriously rehearsed for the cross-over to the new system were having an easier time than those who did not.

Bottom line, stock values will still be viewed the same way whether it is traded in the old system or the new.  If the stock is cheap, it will attract buyers.  If it is over-valued, it will encourage sellers.  The thing to do, then, is to look again at prices and get used to these narrower fluctuations.

I do not have much to say except that I will continue to follow the stocks that I was watching last week and see if the trend remains intact.  It is still a matter of value, no matter how you put it.

July 26, 2010 Posted by | Financial markets in Asia | 17 Comments

Levels of comfort

10:22 pm   Sunday  25 July 2010

Looking at how the global markets are behaving, it seems that the U.S. indices are all bumping up on their respective 200-day moving averages.  Ominously, the VIX is resting atop its 200-day.  In the next few days, we will likely see the direction as a tug of war between weak economic indicators and positive earnings surprises continues.  In the local market, a steady supply of earnings reports are already queued up.

Late Friday, EDC disclosed 1st half 2010 income of  Php 5.74 billion, up 113%.  Core income was Php 4.85 billion up 89.2%.  This is more than just recovery, this is a sure growth spurt which may overshadow planned redevelopment expenditures on newly acquired capacity.  EDC had been gathering support below 4.60 and this earnings report may just give the encouragement for the stock to start heading to its fair value of 5.60.

This week and next, MER, GLO, AEV and AP will be doing their 2Q analysts briefing so there should be some excitement coming.  Then, there will be the ongoing saga in the banking sector in spite of denials coming from the PNB president.  There would be at least some realignment due to the raised valuation levels that the second tier banks such as UBP, RCB and PNB are receiving.  If you recall, CHIB saw its price adjustment already just over a month ago.

With PNB and RCB having spiked up strongly last Friday, I think players will continue to be attracted to the game.  After all, PNB has to reach its full potential yet while RCB may be shrugging off its stigma of the last few years.  Nevertheless, when a story on a stock starts to emerge, lots of players are wont to place their bets, especially now that some momentum has come behind RCB.

UBP is one that cannot be likewise ignored.  It will be reporting earnings next week together with the AEV analysts briefing.  It is not unlikely that they report earnings surprises since the past quarter was a good one for treasury operations due to some volatility in the foreign exchange and debt capital markets.

The week will probably start slow as floor and on-line traders get used to the new trading system on the PSE.  Hopefully, most of the kinks have been fleshed out by trading participant during their rehearsals last Saturday.  I do not doubt that within hours, these guys will come to a level of comfort with the new system.

Of course a lot of ears will be trained on what President Aquino will be saying in his state of the nation address, but that will be trading hours are over.  I am confident that there will only be favorable policy announcement toward business and new enthusiasm should arise.  In the meantime, the best advise I could give is this: ask yourself if you would be willing buy the stocks in your portfolios again at tomorrow’s prices.  If your answer is yes, then you should remain comfortable with your positions.  If not, then do some top-slicing so as to money manage your position.  Remember, a good poker player makes money not because he is always holding a winning hand, but because he knows when to put money in or take it out of the table.  The same rule applies to stock market investing, except with stocks, the time horizon is longer.

July 25, 2010 Posted by | Uncategorized | 19 Comments

A big bang!

7:00 pm  Friday  23 July 2010

What can I say when I see such a volume spike on a stock?  PNB saw value turnover exceeding half a billion pesos and was the biggest gainer on the day – a rise of 13%.  It only goes to show that a stock will try to approximate its real value when people realize its true worth.  Of course at this point, the question will be whether that value is a conservative 48, a reasonable 55, or an aggressive 60.  I am sure there will be different ideas and I will not argue the point.  My own  estimate has been a value around 48 even as early as this time last year.  I congratulate those who bought it then and had the staying power in this stock because rewards did not come easy.  The important thing is that it did and it came with a bang today.  I have always clung to the notion that if a good asset is very much under-priced, it will eventually attract buyers.

At this point, I can only speculate that there is going to be M&A activity beyond the consolidation of PNB with Allied.  I think that it will be worthwhile for some banks to do this.  My personal take is that a bank like UBP or SECB should at least have a look.  Acquiring PNB would allow it to leapfrog into the big league of Philippine banking.  I had mentioned in an earlier post the strength of the PNB banking franchise.  I did not even mention than in most provincial cities in the Philippines, the most prime of properties in the center of the poblacion is a PNB branch.  You can see that in cities such as Bacolod, Iloilo, San Fernando (La Union and Pampanga) Angeles, Cagayan de Oro, you name it.  Is it not surprising that PNB is ahead of everybody else in LGU finance?  They have long been positioned in the various regions.

If I were to guess, I think the best fit for a buyer would be UBP which have very strong core shareholders partnered with the Aboitizes – the SSS and Insular Life Insurance.  All of these guys have strong financial muscle and deep pockets.  Most of all, I think they understand the regions probably better than any of the bigger banks likely because they too are spread out in the regions.  Do not take my word for it though;  I am just making an educated guess.

What I really like about what is happening is that it will give life to the banking sector for some time to come.   Markets thrive on expectations and possible scenarios, and the permutations on how the M&A game will be played are very intriguing.  It may even be minuscule Bank of Commerce who would look to buy considering that they now don the San Miguel logo, and their parent had amassed a cash hoard lately.  Again, I am speculating.

If there is one thing that is dampening the market, it is the installation of a new trading system scheduled on Monday.  My broker friend, however, likens this to the “BIG Bang” in the London Stock Exchange in the 1980’s when the Footsie went into electronic trading from the open outcry method.  It even caused the older traders to cry because trading would not be same again.  Anyway, this new system will probably create greater liquidity in the market as the fluctuations are now much finer which is good for those who like to trade a lot.  As with any innovation, it scares a lot of people.  That was what happened when the automobile was invented.  Tell me, is anyone complaining now about owning a car?

July 23, 2010 Posted by | Financial markets in Asia | 29 Comments

Banking on excitement

7:20 pm  Thursday 22 July 2010

The market simply took its cue from the negative sentiment in Wall Street, and Wall Street simply took their cue from Fed Chairman Ben Bernanke who testified in the U.S. Congress that the economy is still in the tank.  Most Asian markets eased in sympathy except China and Hong Kong which are mutually benefiting from easier capital movement rules between them.  While it did not fuel any aggressive selling in the PSE, there was a reason for some people to take profits.  I am just relating some of my observations.

The volume spike in MPI the yesterday and prices holding around 2.60 today gives some reassurance that the stock is at the bottom of its trading range.  If this does not hold, I think the support is not far behind.  My guess is that it is at 2.40.  I suppose people are wary of the company’s debt load; but don’t forget that most of its assets are in infrastructure which is long gestating, but when they do they become cash cows.  Debt is an integral part of any infrastructure play.

MER, a sister company of MPI, may be worth watching as it approaches 180 which is where its 50 day moving average lies.  I think there are a lot of interested parties waiting for it to touch 180 or lower to accumulate positions.

The sell off in MBT suggests to me that a consolidation process is going on.  I do not think that the next earnings reports will be negative for MBT.  I suspect that major portfolios are just making room for other banking issues given the new excitement has been generated by PNB.  I expect bustling activity in banking stocks soon after floor traders at the PSE become comfortable with the new trading system.

With SCC soaring some more, it is no surprise that DMC continues to be strong.  The interest in SCC continues to grow as more information on the excellent results of the Calaca acquisition flows to the public.  Some analysts see SCC to be worth at least 126 which leads me to believe that DMC, even at 19.50, is poised to move higher supported by further strong buying.

Another stock that is gathering support is EDC.  At around 4.55, EDC looks to be bottoming although range could be narrow with upper range only at 4.80.  Its grandparent, LPZ,  could have run its course already.  People are looking to take profits at 3.80, and there is no new impetus to take it higher.

The nervous trading in DGTL with a wide price range today is nothing to be worried about.  With volume rising as it is, I think it may be worth the risk posting at 1.44 to 1.46 even if foreign selling is detected in the stock.  You could get lucky because I think new players will be coming to have a look.  There are lots of reasons to be hopeful on Philippine stocks.  You just have to choose them right.

July 22, 2010 Posted by | Financial markets in Asia | 37 Comments

Lock, stock and safety deposit boxes

7:25  Wednesday  21 July 2010  Philippine Stock Exchange Index  3418.71 (+0.38%)

I spoke to some people on the PSE trading floor and there seem to be some wariness being felt about the new trading system.  There are misgivings about putting on larger trades because money could get stuck if there are system failures.  of course, there will always be those who would rather pass up some opportunities rather than risk losing money.  I don’t blame them.  The value of this information (traders’ skepticism on the new trading system) is that it deflates some of the positive market outlook in anticipation of technical hurdles in the trading system.  This tells me that people’s view of the market is positive but not too positive.

I interpret market action today to be that of rotational buying.  You have the large cap stocks like TEL, MBT and BPI down a shade, and you see the likes of PNB, MEG, DMC and SCC continuing to surge.  All told, we are seeing a very healthy market.  There are people who appear to be trading the range, and you can see it today in stocks like MPI, EDC and MER.  Then, there is the accumulation that seem to be going on in stocks like DGTL and SMDC.

When I see different strategies and movements simultaneously going on, then I see a market that is surely deepening.  I think that is very positive for everyone involved.  It may be a slow process, and it probably took the 2008 global financial crisis to do it, but the deepening of the Philippine market may just be happening this year.

This is all good philosophically, but the bottom line is how to make money.  For those who were lucky enough to bet on the PNB bandwagon early, there is scuttlebutt that makes me believe that the story has a long way to go.  Rumors have been flying about potential M&A activity in PNB.  The story is getting stronger; and concrete steps, I hear, are going on behind the scene.

I look at PNB as a pure play on the company’s fundamentals which are: a strong banking franchise, high customer recognition, wide distribution network, skilled management and staff, a balance sheet that has gotten stronger over the last 10 years, and a strong return to profitability.  Anyone who has the money will be willing to buy PNB lock, stock and safety deposit boxes.  Will you be chasing prices if you bought at 38?  I don’t think so.  It boils down to the question as to whether you think this stock is worth 38 or higher.

Another stock which has been going great guns is SCC, but at 98.50 people may just be wont to shy away from the stock.  After all, at the beginning of the year, SCC was only 35.  Then again, I hear that cash flows from the recently acquired Calaca power plant is much higher than the company even anticipated.  again, it boils down to whether people believe that this stock is worth higher than 98.50.  I personally think so, but to be safe, I decided to place my bet on DMC which owns a good chunk of SCC.  Either way, I think both stock will continue to do well.

Of course, the latest favorite is DGTL.  I am sure that there are a lot of arguments against buying this stock.  I welcome all of them, and I will probably not answer most of them for fear of being repeating myself too often.  The price action in DGTL simply tells me that more and more people are getting convinced as more primary research comes out.  I must stress, the decision must come from research because you can never substitute rumor for hard facts.  If DGTL slowly claws its way up to 2, I would be the least surprised.  It is probably the only telco play for the time being although my strategy is to asset allocate between DGTL and TEL.  TEL has the yield and DGTL has the growing market share.  I think together the portfolio result will be more that satisfactory.

July 21, 2010 Posted by | Financial markets in Asia | 17 Comments

How many bags did you say?

6:40 pm  Tuesday  20 July 2010   Philippine Stock Exchange Index 3405.69 (-0.54%)

The Asian markets were all soaring today with both the S&P Asia and the MSCI Asia indices rising by one percent.  Most stock markets were following the direction set in New York Monday.  Actually, more than that is the positive sentiment building up for China.  Stocks in the Mainland has actually been on the down trend  for about a year already ever since investors became suspicious that an asset bubble was inflating in the country.  Today, China opened up some more for capital flows coming from Hong Kong and investors responded more than positively.  With good news from China and stock prices recovering in the developed markets, the mood looks to be turning in this part of the world.

Why on earth is the PSEi down then?  It seems beneficial not to be correlated to the major markets, but it looks ridiculous when everyone’s mood is up and things go the other way in our market.  Actually, that 18 point decline in the index came from 5 stocks – TEL, AC, ALI, EDC and AGI.  From that perspective, things do not look bad at all.

Two of my favorites – PNB and URC – went against the grain with very good volume.  With PNB, you are seeing a value turnover for the last two days that exceeds half a billion pesos.  That cannot be a bad sign by any measure.  Volume always precedes price and if you look at the volume that has built up in PNB over the past week, it has topped one billion pesos.  Obviously, the market is already predicting that the merger is days away.  I have liked PNB for about a year now and I had never left my position without it even as it went up and down.  It is looking like a two-bagger already and still going.  I am very happy for those who believed in this stock.  I ill say the same for those who stuck with URC, especially to those who stayed with URC for the last 12 months because it is now a three-bagger.

These recent price movements in particular stocks simply proves my point about picking the strong and credible stories.  I always believed that stocks with a story to tell will have the longevity that investors are looking for.  Yesterday, I referred a bit to DGTL which has been intriguing me since it spiked in June.  Ironically, it was a case where we saw the volume spike to be met with strong selling.  Recently, the volume had eased already.  What is curious is the fact that huge volume changed hands successfully, even as prices declined.  I think what we are seeing is some redistribution in the stock from investors that probably have gone impatient.  This is why I think taking a contrary view to those who sold heavily may just prove profitable in the intermediate future.  The market is looking for potential two- and three-baggers and my instinct tells me that DGTL could be a leading candidate.

Way back in 2002, DGTL’s cellular business was just targeting 2 million subscriber because that was what it took to break even.  In 2010, it is supposed to have 10 million subscribers and growing.  I have seen market research that DGTL indeed has eaten up market share from GLO.  Of course, I think deeper research needs to be done on the stock, and that is what I am headed to do.  In the meantime, I think I will be willing to put some money in an idea such as this simply because I need another two- or three- bagger.  It is a gamble that can be calculated.

July 20, 2010 Posted by | Financial markets in Asia | 53 Comments

Rewarding the diligent

12:50 pm  Monday 19 July 2010  Philippine Stock Exchange Index 3,424.29 (-0.53%)

The pervading influence in the market today was the 261 point decline in the DJIA last Friday.  Both the S&P Asia and MSCI Asia indices are down close to 1%.  What is spooking many technical analysts are the lower highs and lower lows being seen in all the U.S. market indices – DJIA, S&P 500, NASDAQ and Russell 2000.  The consumer confidence survey’s preliminary July reading on the overall index dropped to 66.5 from 76.0 in June reflecting a very sharp reversal in sentiment after it reached its strongest level in nearly 2-1/2 years the previous month.

There were pretty good gainers in the local market led by PNB followed by SCC, BPI, MWC, AEV, VLL and AGI.  Surprisingly, one stock that has lagged the market for the last 15 years – RFM – has broken into the most active list as a gainer.  I do not know what’s going on in this stock, but surely there is something going on.

The question is always “where are we going?”  I think, except for PNB whose merger story is slowly unfolding and already taking hold, the broad market is not going anywhere.  From April to June, the PSEi tried to break convincingly past the 3300 level and was turned back four times.  The real convincing break was last week when the market tried to assault 3500.  Although we did not get there, I think most investors believe that this market remains in the upswing.  The only problem is the fear that the global markets will dampen local sentiments.

The idea is not surprising considering that in the U.S., in spite of higher than normal earnings surprises, investors tended to focus on the slowdown potential of the economy rather than the profitability of the companies.  I would be careful not to be skeptical because extreme sentiments are normally counter indicators.  Nevertheless, a trend has developed in the major markets, and it would be fatal for Philippine market watchers to ignore it.  Again, it will be a matter of picking the right horse since it most certainly will not be a case of the tide rising.

I am still keeping my eye on DGTL.  The stock has been volatile and has been attracting a lot of negative criticism that I think the ground is being set for strong support for the stock.  If everybody was euphoric about this stock, then I would not be constructive.  At this point, I think investors are just rediscovering it and are gathering enough nerve to convince themselves that this time around, the Gokonweis will finally relase a pay-off for longsuffering DGTL investors.  With the long saga working out for a stock like PNB, I cannot see how it cannot for DGTL.

What I reallly would like to say is that while global trends may be trying to pull the local market down, it is still a matter of value.  Stocks that offer good fundamental promise will return rewards to the diligent investor.

July 19, 2010 Posted by | Financial markets in Asia | 29 Comments

Relief from heights

6:00 pm  Friday  16 July 2010   Philippine Stock Exchange Index  3,442.68 (-0.72)

I feel relieved that the market was lower today.  It gets scary when markets just continue to soar particularly when prices of some stocks are trading at their historic highs.  I’m referring to AP and AEV.  One thing that I have renewed confidence in is the upward trend of the market.  It had a tough time breaking out of the 3300 level, and now it is convincingly beyond that barrier.  I am reckoning that some stock prices will be well supported at the recent congestion of prices.

MBT, for one, has been seeing price congesting around 60 and has likely established strong support at that level.  PNB looks to be consolidating, and I feel confident that 32 will prove to be a strong support.  Other banks, such as UBP and SECB is reflecting strong support at slightly lower levels;  in UBP’s case, it looks like 42 and in SECB, the likely support is 65.  BPI could be poised for a dividend strategy, and if it drops to 45, it should be a profitable dividend play.  The stock normally announces dividend in August.  Given nothing negative in the financial sector, banks in general should be attractive to investors at this point.

Among my favorites, I think DMC is one that is consolidating.  I feel that the buying support for the stock at around 18 will likely carry this stock to the next level, i.e. above 20, in a couple of weeks.  Another favorite, which is EDC, is not looking so good.  I cannot figure out whether it is trapped in a tight range between 4.50 and 4.80 or will develop a down trend.  After today’s session, EDC is looking weak just like its immediate parent, FGEN.  Funny that LPZ and FPH are both looking strong despite the fact that both its strongest operating companies are easing in price.  It could be that people are switching to the parents as I have heard some comments that the discounts to NAV of the holding companies have widened again.

Property stocks SMDC and RLC will likely maintain their upward trend.  SMDC only became a market favorite this year when people saw concrete signs of its being a major player in the housing market.  The stock has a lot of promise;  while it may have gone up a lot in price, I think people will attach a premium to SMDC in the future simply because of the visibility of its projects.   RLC has eased a bit from its highs in April and price has been relatively soft recently.  At 14, RLC should be a very good buy.  Our original concept wa RLC is a cheap ALI given that both stocks have the same property mix of malls, affordable housing and premium residences.

I have also observed that while telco shares have been out of fashion for quite some time, shares of TEL and DGTL have been very active.  For TEL, I think that since we are approaching dividend time, people are realizing the yield value of the company.  TEL has surreptitiously moved past its 5-day and 20-day moving averages.  It paid a total of Php 141 in dividends last March and is due to announce dividends again this August.  At these prices, TEL is showing yield of 8.8% on a PE of 11.26X 12 months trailing earnings.  That is not easy to ignore.

DGTL on the other hand has been the object of good news.  I mentioned in an earlier post that DGTL has been grabbing market share from GLO while TEL’s share has remained intact at 60%.  DGTL has also reported good profit figures in 1Q2010.  Given that it has at least 10 million subscribers already (some say it may be as much as 15 million), 2Q2010 profits to be disclosed in a matter of weeks should confirm the sustainability of its recently found profitability.

Over all, I think that our market should be in good shape.  It is not as if prices have moved up faster than earnings because there is little evidence of that.  It is more like local stock prices have been very cheap together with the broad market.  We could see some weakness in the coming weeks, but I think it will only be in sympathy with the global equities market.  Nevertheless, now that the fear to invest in the developed markets is greater, the level of comfort of investors in the Philippines could just go higher.

July 16, 2010 Posted by | Financial markets in Asia | 51 Comments