Gus Cosio says so

Ideas on the Philippine Stock Market

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.

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July 19, 2010 - Posted by | Financial markets in Asia

29 Comments »

  1. Hi Gus,

    It has been over a week since I last posted due to a myriad of things that kept me busy. My only trade last week was PNB buy@34.5 even though my broker from First Metro advised to buy when it was still at the 30-30.5 levels. I missed 15% but I’m not crying over spilled milk, it’s now at 36.

    I agree that getting the most from this market is all about making the right picks. Today, despite the 18pts drop of the PSEi, my portfolio went up by a .24% from Friday’s close and by 2.5% from today’s lows. Saturday morning I was thinking of whether I should sell some of my holdings because of the DOW’s plunge but then I said to myself that the stocks I own are that of excellent company, namely DMC, LPZ and PNB. I have overweighted myself in DMC and PNB simply because I see immense strength in them. Too bad I didn’t average down on LPZ when it went down, I would’ve made a killing.

    What I’m trying to drive at is that in a market that is quite volatile and turbulent as what we are in now, one should not get swayed my minor hiccups. I bought the stocks because I liked them then, and in such a short span of time, the underlying fundamentals have not changed thus I do not see a need to sell. I will only consider selling once market sentiment has clearly taken to the negative once again.

    I no longer set target prices because in the past, when I sold upon reaching my target, the stock continued to trend up. I now stick to the acronym POP-COLA which is basically riding the trend until such time it has lost steam which I do not see in the near future particularly with DMC and PNB. As for LPZ, the share buy-back is what’s making me comfortable in just holding the stock.

    While majority of my gains so far this year are due to your recommendations, I am much more grateful for the market wisdom that you share because that is what will continue to give us less experienced investors, sustainable trading profits in the years to come.

    Comment by richard | July 19, 2010 | Reply

    • Thanks Richard. Is there a LPZ buyback? have not heard about it or I just missed it. I am also holding my PNB shares, waiting for the merger to unfold.

      Comment by Cliff | July 19, 2010 | Reply

      • I think the buy-back is on FPH of which LPZ is the ultimate holding company.

        Comment by Gus Cosio | July 19, 2010

    • Richard,

      “I no longer set target prices because in the past, when I sold upon reaching my target, the stock continued to trend up” – I think i am guilty with this mistake, this happened to me on JGS, MBT, SCC and now PNB. Although i sold them at the range of 10-20% gain, it seems after selling, the stock only got stronger. Indeed there is so much to learn in the stock market.

      Comment by KennyV | July 19, 2010 | Reply

      • KennyV,

        I encountered POP-COLA, which means Prolong Our Profits, Cut Our Losses Aggressively, when I first started trading stocks in 2007. Both are not that easy to follow but COLA is so much harder than POP. I sold AP in 3 tiers, with the last batch sold for 50% profit and yet I still sold too early. MBT sold @49.5, RFM at the bottom of 1.12, DMC @12(good thing I bought back @13.5) and almost all of them I sold a day prior or minutes before rallying. Upon calculating, my portfolio would’ve been up by about 30% more had I not sold too early. When I realised this, I had committed myself to stick by the credo all the time. When I started trading again this February, I have already mastered COLA but not POP. Not until this weekend. Now I treat paper profits and confirmed stories(i.e merger, acquisition or buy-back programs) as margin of safety thus minimizing my risks.

        Comment by richard | July 19, 2010

      • I totally i agree with you, I think it is psychologically easier to COLA than to POP. Probably because at the back of our minds we are trying to avoid the cliche “Pera na naging bato pa”. Anyways thanks for you insights, i would definitely remember POP COLA the next time i sell a stock. 🙂

        Comment by KennyV | July 19, 2010

      • Hi!

        As for my case, COLA is easier to follow. In fact, I believe, I am almost mechanical about it. I was able to execute almost all of my cut loss plan.

        I am having a hard time with POP. It really makes me feel bad when I already liquadated wholly or half of my position on a rising stock. I feel broken hearted for whole day when something like that happens. lol.

        Comment by Oliver Mia | July 19, 2010

    • hi richard, i like your ideas of pop cola..it is our basic nature as human to easilly mastered the art of cola but as our experienced widen over time we can likewise master the art of prolonging our profit and as everybody knows warren buffet is the living example of this investment attitude.

      Comment by richard | July 19, 2010 | Reply

  2. Sir Gus,
    You were right with PNB. Buy at current price. My ave. price now is P31. However was not successful with DMC at 18.25 as it ranged 18.50 and 18.75.

    Comment by Mark | July 19, 2010 | Reply

    • Mark,
      I think if you watch DMC patiently, you may be able to enter at a good price. My current value of the stock is 26, so if there is further weakness in the stock,I’ll use it to add to my position. That would be easier for me to do because my average cost is around 14. Incidentally, I still see PNB above 40.

      Comment by Gus Cosio | July 19, 2010 | Reply

  3. I fully agree. At the end of each trading day, those who invested time in learning fundamentals always emerged as winners. Momentum stocks can give you quick profits, but can also burn you really fast. Believe me, I’m speaking based on personal experience 🙂

    Comment by herecomesthebaby | July 19, 2010 | Reply

  4. Sir Gus,

    Any insight on BPI SRO? Thank you so much.

    Comment by jaayem | July 19, 2010 | Reply

    • jaayem,
      on a normal basis, BPI has managed to return 12% to shareholders. The SRO will work for those that wish to have BPI in their core portfolio.

      Comment by Gus Cosio | July 19, 2010 | Reply

  5. Hi Sir Gus,

    Is it still advisable to buy PNB at 36?

    Thanks Sir.

    Chad

    Comment by chad | July 19, 2010 | Reply

    • Chad,
      I think it is academic now, but even at 37, I am still recommending a buy on PNB.

      Comment by Gus Cosio | July 20, 2010 | Reply

  6. Sir, I havent been following DGTL. How cheap is it at 1.44?

    Comment by Mark Anthony | July 19, 2010 | Reply

    • Mark Anthony,
      DGTL, in my opinion,, has quite a long story. What intrigues me about DGTL is its longevity and what is now the apparent commitment of the Gokongweis to this business. Remember that in 2002, they tried to acquire PLDT but failed. Now, they have achieved critical mass in the business on their own. My instinct tells me that they have surmounted the drag of their legacy systems and operational hurdles. It is less of a recovery story and more of growth. I am trying to substantiate this through primary research. As of now, I think DGTL at 1.44 is worth the trade.

      Comment by Gus Cosio | July 20, 2010 | Reply

  7. Hi Sir Gus! 🙂

    What are your thoughts on AP? Is it a buy at 19-19.25? Or we should wait for a pullback? Thank you! 🙂

    Comment by Aizelle | July 20, 2010 | Reply

    • Aizelle,
      I like AP and I belive that it will eventually shoot up to past 25. In the next 2 weeks or so, however, I believe the price of AP will move far ahead of 19. I would buy it when I feel comfortable enough with the market.

      Comment by Gus Cosio | July 20, 2010 | Reply

  8. Hi Sir, I can’t understand our Market (PSE) right now…many or majority are bullish but if you read comments in World market like Europe,China and US most investor are losing lots money …

    Comment by phil | July 20, 2010 | Reply

    • Phil,
      If you remember my post a week or so ago, I made mention that in the 2nd quarter, our market was not at all correlated to the global markets.

      Comment by Gus Cosio | July 20, 2010 | Reply

  9. Sir,
    Do you think PSEI closing today at 3,405 is a substantial base for a 3,500 climb?

    Comment by Mark Anthony | July 20, 2010 | Reply

    • Mark Anthony,
      I expect volatility between 3350 and 3500 over the next few weeks. It may be a good trading market for some.

      Comment by Gus Cosio | July 20, 2010 | Reply

  10. Hi Sir,

    What are your views on RFM and SFI? They have traded at large volumes today. Was wondering if it is worth holding for the long run since they are still under par.

    Thanks!

    Comment by Nero | July 20, 2010 | Reply

    • Nero,
      My personal rule is that you do not hold a stock which you have not seen sound research on. You can also do the research yourself because I haven’t seen anything on RFM or SFI. Also, not because they are below par means that they are cheap. What makes stocks cheap are their earnings, cash flow and the ability of their earning assets to command a premium in the market.

      Comment by Gus Cosio | July 20, 2010 | Reply

  11. Hi Sir,

    I have been into stocks for 2 months now and have already earned 20%. My decision to switch from time deposits to the market has well paid off. I was now wondering what really determines the price of the stock at the opening bell? I mean if for example, stock X closes at 1, what or who decides that it opens at 2 or less the next day? Is there like a main man or body that decides the opening price?

    Thanks!

    Comment by Starter | July 20, 2010 | Reply

    • Outstanding bids and offers determine the opening price and not any single person. In fact if you enter a very high bid or extremely low offer price, you will likely be the first trade.

      Comment by Gus Cosio | July 20, 2010 | Reply

  12. Sir,
    Been trying to buy DMC at 18.75 or less for 2 days already. Seems very elusive for now. At this stage, does this require a lot of patience of waiting for it to come down near 18.00 or still just viewing this stock based on guidance as of last week i.e. P22-26.
    Thanks

    Comment by Mark Anthony | July 20, 2010 | Reply

    • Mark Anthony,
      Patience is a virtue. You can be bull headed and wait for 18. You can also raise your target a bit to 18.25 or 18.50. I would not recommend chasing prices. I’d rather be comfortable in my entry into a stock.

      Comment by Gus Cosio | July 21, 2010 | Reply


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