Gus Cosio says so

Ideas on the Philippine Stock Market

Can you resist volume?

5:35 pm   Tuesday  13 July 2010  Philippine Stock Exchange Index 3435.85 (+0.85%)

Perhaps, I was a bit too cautious particularly because the market has gone to ear-piercing levels and virtual vertigo may have hit me.  Don’t get me wrong.  I still like the market, but for fear of encouraging greed, I had been harping on being cautious and perhaps some people have missed some moves in the market.  My problem is except for issues like PNB or EDC or maybe even MPI, I would not like to buy the market now.  For example, I like AP and DMC, but I’d rather wait for later.  Well, AP may have softened a little but DMC continues to zoom.  Someone actually showed me primary research on DMC this morning valuing the stock at 26.  It comes as no surprise, then, that it rose to 19, trading even as high as 19.25 earlier.

I will not be surprised if this rally goes further.  I had earlier thought of 3300 as a short-term resistance, but now that we are at 3435 in the index, we are certainly moving toward a higher plane.  My only problem is that I had always thought of the third quarter of the year as a treacherous time in the market.  The scenes of 3Q 2007 and 2008 are still clear in my mind, and I seem to be jaded by the experience.

Nevertheless, I think the bright spot remains to be PNB which has broken the 32.50 resistance.  The other indication of strength is the value turnover today which reached Php 314.6 million.  PNB has never traded this much volume in my memory and I had traded this stock very actively in the late 90’s.  Market sages will always tell you the adage that volume precedes price.  In other words, when you have a tremendous volume spike as you saw today, you can expect a price spike coming.  Perhaps the merger will be coming though, I do not know yet.  One thing is for sure though – today’s volume tells me that demand for the stock has really gone through the roof.  Today’s volume tells me that any loose stocks lying around has found its way to very firm hands.  For all of you who had taken positions on PNB, I think pay-off time is just around the corner.

Here are some macroeconomic snippets for those who think that there is a problem with the economy.  Exports for May, with its y-o-y growth of 37.3%, brought it to exceed 2008 levels for the first time since September 2008.  Exports for 2010 will likely rise by 22% but will not exceed the total of $49.1 billion attained in 2008.  Electronics exports expanded by 41% from the same month last year.  Coconut oil exports sizzled with a 188.8% gain. Exports of ignition and other wiring sets also had a big bounce of 56.6%.

In terms of destination, the strong recovery of ASEAN and the zero-tariff in most items under AFTA  brought exports to the region to surge by 70%.  With such strength gathering on the production side of the economy, personal consumption expenditure in the second and third quarters should be positive.  We should be looking for sustained growth rates similar to that of the first quarter 2010.

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July 13, 2010 - Posted by | Financial markets in Asia

27 Comments »

  1. Hi Sir,

    I was really excited earlier upon seeing the sudden surge of pnb. Would it be a good move to buy some more shares at the 34 level? I was thinking of either adding more to PNB or distributing my funds to either AP, DMC or JGS.

    Thanks!

    Comment by James | July 13, 2010 | Reply

  2. I think those who buy up PNB today needs to sell @ around 42/sh to make good profit(30% net)..They need to Race Against Time…

    Comment by Mr.bear | July 13, 2010 | Reply

    • Mr.bear what’s the best price to enter PNB?is it ok to enter 35.

      Comment by Al | July 13, 2010 | Reply

      • 34 or 35 is ok….hold it for several months..

        Comment by willy | July 14, 2010

  3. i have a considerable amount invested in mpi and dgtl shares that i have shifted from selling at a huge loss from pax and ip, where do u see their stock prices going? it seems to be at its lows for the past few months..any timetable? would you suggest to be all in now or should we wait and see what september holds???

    Comment by gerald | July 13, 2010 | Reply

    • Gerald,
      I have a problem with timetables on stock prices. I simply look at prices and try to establish value. MPI and DGTL are currently cheap and worth buying. When it will go up is a pure guess in which your guess is as good as mine.

      Comment by Gus Cosio | July 15, 2010 | Reply

  4. gus, i’m surprised you have a favorable view of mpi….earnings have been diluted significantly by the issuance of new shares…

    Comment by glacier | July 13, 2010 | Reply

    • Glacier,
      My fundamental research places NAV close to 4, but of course the market will have different valuation views. I think that it is a good trading stock. It always shows up in the most active list indicating that people like to trade it.

      Comment by Gus Cosio | July 15, 2010 | Reply

  5. Sir,
    You mentioned MPI. Its been lagging and hasnt been riding with the market. Can you share your thoughts why together with EDC you seem not reluctant to buy as against other stocks you mentioned that are softening.
    thanks..Mark

    Comment by Mark | July 13, 2010 | Reply

  6. Sir Gus,

    I really appreciate your views on this blog. Your opinions on stocks are very fundamentally oriented. Please keep up this phenomenal task of guiding small investors like me.

    May I ask your opinion about certain stocks on my portfolio namely ICT and FGEN. I bought ICT early last year banking as a global exposure since at least 50% of their income comes from outside RP, do you think it’s overstretched (P/E wise) at this point? About FGEN, Nothing is wrong fundamentally but it is just anemic lately, should I sell and move to either AP/EDC/DMC (currently holding all 3 since early last year)? I am not a trader type but the thing is that I feel that if I liquidate ICT/FGEN, I’d prefer to move it to where it is productive rather than sitting Idle.

    Thank You very much Sir!! More Power

    Comment by raj | July 13, 2010 | Reply

  7. Good morning Gus!

    Im planning to add position on SCC, how low do you think it will correct? Should I wait ’till it reaches 94.5 or 92.5 perhaps?

    By the way can I open a Balance Fund in FAMI even Im not in the Philippines? About 4 weeks ago I went to FAMI’s website and click the “Contact Us” tab and ask the same question to them but for some reason no body replied back to me. Thanks!

    Comment by Ryan | July 14, 2010 | Reply

    • Ryan,
      I think you can wait for some weakness for SCC.

      Comment by Gus Cosio | July 15, 2010 | Reply

  8. good morning sir gus,
    PNB movement is like MIAMI HEAT line up!!! remember my dreamteam stocks: pnb-lebron, mpi-howard, edc-wade px-kobe and dmc-nowitzki…. finally pnb show some power.
    do you have % profit idea when to sell? with out being greedy and conservative as well. thanks sir

    Comment by draco23 | July 14, 2010 | Reply

    • Draco,
      For your guidance, our latest book value estimate of PNB is 48. It could trade above book value as other banks are trading above book.

      Comment by Gus Cosio | July 15, 2010 | Reply

    • Draco,
      With PNB, I think it could go further still. I suggest that you ride with it until you start feeling uncomfortable with the position.

      Comment by Gus Cosio | July 15, 2010 | Reply

  9. I agree, 35 should be okay. I dont think someone is selling at 34.

    Comment by Dex | July 14, 2010 | Reply

  10. jeez FM is still down and trading hours is almost over 😦

    Comment by Dex | July 14, 2010 | Reply

  11. Hi Sir Gus,

    What’s up with the property sector? I’ve noticed that the companies within it is performing well with their price actions. I’ve noticed RLC, MEG,ALI, FLI & VLL performance since yesterday, are good supported with volume. Do these companies will avail of the REIT? by the way when is the supposed implementation of REIT.

    Thanks for the thoughts

    Comment by Cliff | July 14, 2010 | Reply

    • Cliff,
      I think property stocks are being encouraged by lower long term interest rates. This implies availability of mortgage financing at lower rates which will make more units affordable to more people.

      Comment by Gus Cosio | July 15, 2010 | Reply

  12. Hi Sir Gus.

    What can you say of this article “A Market Forecast That Says ‘Take Cover’” By JEFF SOMMER, Published: July 2, 2010?

    http://www.nytimes.com/2010/07/04/your-money/04stra.html?_r=2

    Comment by Mich Mandac | July 14, 2010 | Reply

    • Mich,
      I’ll read it and get back to you.

      Comment by Gus Cosio | July 15, 2010 | Reply

  13. Sir Gus, what do you think of LOTO. It has a total dividend for the year of .75, which is about 4.7% of its price of 15.75. It is about 12% of my portfolio as I thought it is fundamentally ok, but I may be wrong. I estimated its PE 9.3 and PEG of .339, with its estimated growth over 2009 as about 27%. I noticed that it has low volume. My other stocks and ave costs are MAB .015, MPI 2.95, LPZ 3.6374, DGTL 1.5884, FGEN 11.2332, EDC 4.8823, and PNB 26.3545. Thank you.

    Comment by Nel | July 14, 2010 | Reply

    • Hi Nel,
      I do not really follow LOTO, but based on the numbers you sent me, it looks like a fundamentally sound stock. The only drag is that socially responsible portfolios avoid buying gaming stocks which means rather than look at the PE or PEG in comparison to other stocks, compare it to itself, i.e. what was the average PE & PEG in previous periods and what is it now.
      As to your other stocks, they all look okay to me.

      Comment by Gus Cosio | July 15, 2010 | Reply

  14. Hi Sir Gus,

    PNB is currently trading at less than book value. I have followed this stock but was not able to buy it at 28.

    What is your take on RCB which is also trading below book value at PE of 7. The two are the bank stocks that I currently follow.

    Comment by alex | July 15, 2010 | Reply

    • Hi Alex,
      RCB may also be on a recovery phase. I do not have deep understanding of RCB unlike PNB which I have profound appreciation of. I don’t think you will lose money on RCB at this point.

      Comment by Gus Cosio | July 15, 2010 | Reply

  15. good day Sir Gus!

    We are students of prof. Salita from Assumption and we are currently in a stock trading game. Sir can you advice us in where to invest and gain big profit within 3 months period?thank you:))

    Comment by Lara Facto | July 15, 2010 | Reply

    • Lara,
      I mentioned in a previous remark that I have difficulty with time frames with stocks because by its very nature stocks are for investing over a long time horizon. Having said that, I believe you should follow stocks like MBT, DMC, TEL, PNB, AEV and AP which should work over both the short and long time horizon.

      Comment by Gus Cosio | July 15, 2010 | Reply


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