Gus Cosio says so

Ideas on the Philippine Stock Market

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.

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

51 Comments »

  1. Hi sir gus!

    Just wondering, what reports do we have to submit to the BIR on our gains from sale of stocks listed in the stock exchange? I know that they are no longer subject to tax since they are already taxed beforehand, but with the recent witch-hunt of the BIR, some of us could get caught flatfooted. Like me, for instance, I’m unemployed but I’m making around 2M a year from my stock trades (granted of course that it’s a favorable year for my stock 😉 )… We don’t have to include this in our ITR right?

    Comment by WitcH | July 16, 2010 | Reply

    • WitcH,
      From what I know, stock transactions are already subjected to final tax. That is because whether you gain or lose, you pay a tax. In the mutual fund that we manage, we are not taxed on stock gains but we are taxed on interest earned that have no tax withheld at source. As an individual, I reckon since the trading activity is already taxed at source, then there is no need. To be sure, I would seek the advise of an experienced CPA.

      Comment by Gus Cosio | July 16, 2010 | Reply

      • I’m a CPA Sir Gus, but even in actual practice there are only very few people around who have gains from sales of stocks listed in the stock exchange :P. that’s why I was trying to verify from your side where you’ve had actual experience over this. Then again, after careful analysis I’d have to agree that we don’t have to include this anymore being subject to final tax, similar to how we don’t include interest earned from bank deposits in our ITRs..and that’s where I found today’s article in the inquirer about Mr. Villarica highly unfair. What if his gains were from the sales of shares of stock?

        Comment by WitcH | July 16, 2010

      • WitcH,
        If it came from listed stocks and he can support it with his statements from his broker, he should be in the clear. If it were from unlisted stocks, I think the capital gains tax liabilities would be substantial.

        Comment by Gus Cosio | July 16, 2010

      • Sir Gus,
        Are dividends earned taxable?

        Comment by thewingedpalate | July 17, 2010

      • Dividends are after tax income already. For individual beneficiaries, a 10% withholding tax is levied so you’ve effectively paid taxes already.

        Comment by Gus Cosio | July 19, 2010

    • If I’m not mistaken there is no need to include this in your ITR since it is a “final tax” rather than a “creditable withholding tax” which is subject to further computation/audit.

      If you want to be sure though, but don’t want to spend money on a CPA or tax lawyer, call the BIR officer of the day and ask, but be sure to ask on a no name basis.

      Keep all of your receipts. One day someone might ask you to justify your income/lifestyle, especially if you frequently use your credit card.

      Comment by warren | July 16, 2010 | Reply

      • Hey Warren,
        That is very good advice. Thanks.

        Comment by Gus Cosio | July 16, 2010

    • WitcH, I’m curios. How do you compute for gain from sale of stocks if you have parts sold and parts unsold? I would like to know how someone like Peter Lynch can say his portfolio earns 20 % annually for like 20 years? Thank you.

      Comment by thewingedpalate | July 17, 2010 | Reply

      • Hello thewingedpalate, I don’t know how exactly Peter Lynch computed his gains but I’m guessing that he’s doing it on a whole (like computing his total gains for the past five years, and computing how much he gained for each year based on the total.). For Example, if he invested P100 in January 1, 2000 and on January 1, 2005 the amount of the investment is now worth P200 or a 100% gain, we can surmise that he earned 20% annually based on the 100% gain divided by 5 years (We’re not using a compounded interest formula here… for those interested in computing based on compounded interest, we can use the present value tables).

        Anyway, as for me thewingedpalate, I set a cut-off on the balance of my investments at the beginning of the year and compare them again at the end of the year so that I can keep track of my gains on a year-on-year basis, just make sure to record any additional capital you’ve put in during the year.

        Comment by WitcH | July 17, 2010

      • WitcH,
        Peter Lynch’s track record was documented in the returns of the “Magellan Fund” which was the most successful fund of the late 80’s and early 90’s. The return was tracked from the net asset value of the fund which performance tracking firms such as Lipper follow. The NAV reflects both price appreciation and dividends earned less management fees on the fund. That is pretty much like how local funds are tracked. If you look at a fund which I advise – the First Metro Save-and-Learn Equity Fund, it has a 22% compounded annual growth rate since its inception on October 2005. Essentially, If you had Php 1,000 in October 2005, you would now have around Php 2,700 today.https://guscosio.wordpress.com/wp-admin/edit-comments.php#comments-form

        Comment by Gus Cosio | July 19, 2010

      • Hi WitcH,
        Thanks so much. Another question, do you do like income statement at the end of the year?
        Since I started actively trading only this year, what I did was record date bought, no of shares, costs other charges and then after selling compute for gain or loss. But I’m not sure how to treat dividends. Also do I consider stocks not sold similar to inventory? I’m not very good in accounting and your input’s highly appreciated.
        Thanks in advance.

        Comment by thewingedpalate | July 18, 2010

  2. Sir Gus,
    May I ask what’s your current portfolio like? I currently own aev ap dmc edc eei ict mbt mwc pnb smc urc. Would you recommend trimming down or just hold? I’m into long-term investing and found stock investment yields more than SDAs or time deposit.

    Your opinion’s highly appreciated. Thank you.

    Comment by thewingedpalate | July 16, 2010 | Reply

    • Thewingedplate,
      except for SMC, I think you have a winning portfolio. I would also choose between AEV and AP. While both are good stocks, you would do well to diversify because AP is already inside AEV. May I suggest looking into SMDC, DGTL or TEL.

      Comment by Gus Cosio | July 19, 2010 | Reply

  3. AgriNurture(ANI) planning September IPO

    Any thoughts? It had its introduction at 23.5 an now at 16..
    Future looks bright they might also have their land under REIT

    http://bworldonline.com/main/content.php?id=14307

    Comment by Foreign Investor | July 16, 2010 | Reply

    • In my case, if I will look at this stock, it will be at its IPO or later.

      Comment by Gus Cosio | July 16, 2010 | Reply

  4. Sir Gus,
    I have a sizable position on EDC. Do you think it will still go back to 4.45-4.50 or will it be supported at current level of 4.60-4.65? Thanks in advance for any input on this.

    Comment by Alex | July 16, 2010 | Reply

    • Gee Alex,
      Your guess is as good as mine. My consolation is that I view EDC’s value closer to 5.50 that 4.50. It is just unfortunate that I seem to have entered the market too soon. If you want to know my strategy, I will probably hold the stock if it holds at 4.50. If it goes to 4.40, I may just think of getting out. I’ll decide when it gets there.

      Comment by Gus Cosio | July 16, 2010 | Reply

  5. Hi SIr Gus,

    What’s your view with RFM & SFI, this two are moving up in same step.

    I am surprised also with LPZ, I thought it will follow the dive of EDC but luckily it was able to hold at 2.75 to 2.80. Is it worth to hold this stock till the end of the year?

    Comment by Cliff | July 16, 2010 | Reply

    • Cliff,
      With RFM and SFI, i think you should do further research on these stocks on the sustainability of higher earnings. I cannot really tell you anything of substance on these stocks.
      On LPZ, I would track this vis-a-vis FPH, ABS, FGEN and EDC. Try to analyze the relationship and price differentilas among them. You’ll probably see a pattern.

      Comment by Gus Cosio | July 16, 2010 | Reply

  6. Hi Sir Gus,
    I’m new to stock trading and your views help me a lot. I recently puchased CHIB (i was attracted to the dividends on july 19) i’m not sure if i made a good decision. do i hold on to it after the ex-div? what stock would you recommend if i plan to hold it for 3 months.
    Thank you very much.

    Comment by newtotrade213 | July 16, 2010 | Reply

    • You did well in buying CHIB. If you like banking stocks, PNB has some more room to go.

      Comment by Gus Cosio | July 17, 2010 | Reply

  7. Sir,
    I just dumped MPI and FGEN which comprises 30% of my portfolio as they have been dragging my portfolio for the last 6 months. I’m left with PNB is only 15%, MER 30% and EDC 25%. I’m trying to decide on putting more weight in PNB say make it 30% of portfolio and/or get into DMC and/or AP. May I know your thoughts or suggestion.
    Thanks..your blog has been very helpful. making my portfolio turn to the upside.

    Comment by Mark | July 16, 2010 | Reply

    • Mark,
      What i would do is split it 10% PNB, 10% AP, 10% DMC.

      Comment by Gus Cosio | July 17, 2010 | Reply

  8. Sir,
    At what price level would you think best to re-enter AP, DMC, PNB and JGS?
    thanks

    Comment by Mark | July 16, 2010 | Reply

    • For AP, as close to 18 as possible. For DMC anything at 18 would be good. PNB, I’d get it right away because the merger is imminent. JGS, any pullback – just get it.

      Comment by Gus Cosio | July 17, 2010 | Reply

  9. Sir GUS, about DGTL :
    1. just wondering how come there is so much supply coming out of the foreign houses recently at these levels.. Heard those shares are from Avenue Asia’s.. Any truth on the matter?
    2. some have been saying that DGTL’s first quarter surprise positive earnings stemmed from forex gains and not from operating gains. Also, what is the normal PE of local rival telcos like GLO and TEl…
    >>>>> thanks so much, Sir Gus and more power !

    Comment by Andrin | July 16, 2010 | Reply

    • Andrin,
      I have no clue who is selling; actually I don’t care. Their opinion is only as good as mine. I also do not know if earnings came from forex gains; again I don’t care because what is important right now is the subscriber base.. I do not know what is GLO’s PE. I do not like GLO because it is losing market share to DGTL. TEL’s PE at yesterday’s close is 11.2X 12 months trailing. I like TEL because it has all the numbers going in its favor.

      Comment by Gus Cosio | July 17, 2010 | Reply

      • for anybody considering dgtl you should look into the quality of the subscriber base they’re acquiring (ie. companies vs. individuals). pldt and globe run very efficient operations so dgtl will lose at a price war. my opinion is they’ll be back to losing money for at least a year. no difference in service between the three (ie. commoditized) and the long-term direction of telecoms is price wars and shrinking margins. the gokongweis are very pragmatic and i think they will eventually make this business work albeit with thin margins which i assume is perfectly fine with them as long as they are profitable. caveat, i am a complete idiot at technical analysis so for those who invested based on this style, my apologies. also, of those who bought dgtl, how many are customers of the company?

        Comment by ed | July 17, 2010

      • Sir Gus ,Gentlemen:

        DGTl 1st qtr net income is from operations although there is a portion from exchange rate gains.It can be read from the report filed with the PSE.

        I personally is using sun cellular because to me there is no point paying more when you can get it at lower price.

        Thanks

        Comment by alex | July 18, 2010

    • Mr. Ed,

      Thanks for the ideas. Seems that in contrast sun is the more efficient player because it is able to charge less for the same service versus globe and Tel. I think the only noticeable advantage of GLo and TEl is the cable network that they have.

      I said this previously that with out sun cellular most probably, the cost of cellular phone call is still P5 to P8 per minute same network. How many Filipinos, even subscribers of Tel and Glo have benefited from savings brought about by the entry of sun cellular in that GLo and Tel was forced to lower charges and offer unlimited services?

      thanks

      Comment by alex | July 18, 2010 | Reply

      • i agree sun cellular is good because they bring about competition and lower prices which is what i love. i’m concerned about the optimism on the stock and the price people are paying. pldt and globe run a 30%-40% operating margin which gives them room to move against competitors if they legitimately feel threatened. telecoms requires huge capex and that is one of the barriers to entry. san miguel won’t even be a legitimate competitor until maybe three years out. with dgtl it remains to be seen how “sticky” the new subscribers will be. there should be more research if the acquisition of subscribers is the basis for the positive view and how good the resulting earnings are. i’d like to see more justification for dgtl.

        Comment by ed | July 18, 2010

      • in my personal view this time i may allot a little portion of my trading fund to glo for a possible declaration of cash dividend which normally happen on august if it will fully declare{reg @ special)it may not be lower than 8percent of its current price.it is the company”s policy to declare at least 80 or 90 percent{not so sure but either of the two)of its prior year”s net income.

        Comment by richard | July 18, 2010

      • i believe the payout ratio you’re referring to is closer to that of pldt. globe, and the ayala group for that matter, keeps things financially conservative. globe makes its payout ratio at 50% and under. might not be attractive to traders/speculators but when economic disasters come around companies like these usually outlast the others.

        Comment by ed | July 18, 2010

  10. So far with your guidance, I’ve only got few stocks on the RED zone now. I am thinking of dropping my basura stocks which I bought on my initial trades. Is it okay to cut loss at 40-50% loss in exchange of a seemingly performing stocks? Or is patience really a virtue?

    I know I’m asking a really broad and vague question, but I just want to know your views on cutting loss, averaging down, etc. When is the right time to do so? Are there any signs we need to watch out?

    Comment by herecomesthebaby | July 17, 2010 | Reply

    • In order for losses not to accumulate, the rule of thumb is to cut at 15% and forget about it. You average down if you really like the stock. You can really like a stock only if you do as much research on it as the stock deserves.

      Comment by Gus Cosio | July 17, 2010 | Reply

  11. I think pldt and Glo will rally in the coming weeks…

    Comment by jack | July 18, 2010 | Reply

  12. There are only two kinds of Investor….Those who Make a PROfit..and those who dont..

    Comment by Astuteinvestor | July 18, 2010 | Reply

    • Wrong, astuteinvestor. There is only one kind of investor – the one who makes money. It is the speculators that lose money. Real investors are those who know how to buy when it is cheap. Speculators on the other hand buy only because they think prices will go higher. Oftentimes, they are wrong.

      Comment by Gus Cosio | July 19, 2010 | Reply

      • Very well said Sir

        Comment by Foreign Investor | July 19, 2010

      • i really agree Sir Gus

        Comment by tatels | July 20, 2010

  13. Sir Gus,

    I took profit on PNB today. Without your guidance it wouldnt have been possible. It’s the 2nd time i had significant gain on this stock! Thank you and God bless you sir! 🙂 I picked up some PX@11, RLC@14 and place a bid for EDC@4.55. Your insight’s on this move would be highly appreciated sir.

    Comment by KennyV | July 19, 2010 | Reply

    • PX is alright at 11. I own some although I don’t expect PX to move higher until around year end. It could even move a bit lower before then due to lower metals prices. For EDC, I think a lower bid might be more apprpriate. The stock looks weak. FYI, I own some EDC at 4.60.

      Comment by Gus Cosio | July 19, 2010 | Reply

  14. Thanks sir! cancelled my bid already 🙂

    Comment by KennyV | July 19, 2010 | Reply

  15. Hi Gus,

    From one of your replies above, it looks like you see more upside in JGS. Aside from its upcoming CEB IPO, can you please share your positive views on this stock? Thanks…

    Comment by jamie | July 19, 2010 | Reply

  16. Sir Gus,

    I sold my 30% of EDC at 4% loss including commission and transfer to DMC @18.25. I hope i made a right decision. Thank you.

    Comment by jaayem | July 19, 2010 | Reply

    • Jaayem, I think you made a right decision as shown by DMC price action today.

      Comment by Cliff | July 19, 2010 | Reply

  17. Sir any insight on SOC. Thank you.

    Comment by jaayem | July 19, 2010 | Reply

    • Jaayem,
      I’m afraid there is no fundamnetal research available to me on SOC.

      Comment by Gus Cosio | July 19, 2010 | Reply

  18. Hi Sir Gus,

    Another good day for PNB, both for volume and the price as it reached 36 today. What do you think PNB at 36, will it continue its ascent? I have 30% cash, and I am thinking to add my position in PNB.

    Also, what’s your view with BPI SRO? If I am not mistaken, it is 1:9.9961. IS BPI at 47 a good buy, with SRO coming?

    Thanks in advance

    Comment by Cliff | July 19, 2010 | Reply

    • Cliff,
      I haven’t heard of any SRO by BPI. I don’t receive any notice because I’m not a stockholder. As for PNB, my valuation for the stock post merger is 48. It could go higher,but that an opinion from someone who likes PNB.

      Comment by Gus Cosio | July 19, 2010 | Reply


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