Gus Cosio says so

Ideas on the Philippine Stock Market

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.

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July 20, 2010 - Posted by | Financial markets in Asia

53 Comments »

  1. Hi sir Gus. Thanks so much for your sage advise on PNB. MPI on the other hand seems to be breaking down. You mentioned before that it was just waiting for direction. I still believe in its fundamentals but the present water crisis is being reflected on the price. Do you think it will “flow” back up anytime soon?

    Comment by jojo | July 20, 2010 | Reply

    • Jojo,
      I do not have a crystal ball so timing is a bit touch and go with me. I can tell you, however, that this is a cheap stock. Your decision should be governed by your own level of comfort.

      Comment by Gus Cosio | July 21, 2010 | Reply

  2. Sir Gus,

    Is MEG a qualified candidate for a two- or three-bagger? My husband is heavy on this and wants me to follow his suit.

    Thanks again.

    Comment by herecomesthebaby | July 20, 2010 | Reply

    • I would not recommend that you both concentrate your holdings on MEG. If you want to stick to property, try RLC or even VLL.

      Comment by Gus Cosio | July 21, 2010 | Reply

  3. Sir Gus and Ladies and Gentlemen,

    Any other thoughts on URC since now PF is being sold by San Miguel and potentially to be awarded to a bidder this week. URC had 64M NFS today but based on the past few days even due to the NFS the stock is still performing really well. As for DGTL, I also cant say when would be a good time to get in Since my position is on MEG and URC 30 and 70% respectively. I would like to stay focused rather than diversifying

    Comment by Foreign Investor | July 20, 2010 | Reply

    • Dear Mr. Foreign Investor,

      About 2 years ago, I discounted buying with what meager savings I had for URC because I thought that ” it is properly valued it being on the food and beverage business which many say is and will be, of slow growth”.

      Then, URC net income grew several fold on the back of better margins, better economies of scale and expansion overseas. I cant help but be amazed.

      I think that with the demand for that stock with out a strong seller, the price will spike upwards.

      thanks

      Comment by alex | July 20, 2010 | Reply

      • Congratulations on your URC, Alex. if you ever take profits, be sure to keep a core position in the stock since your cost was very low.

        Comment by Gus Cosio | July 21, 2010

    • No problem with that if that is your strategy. I prefer RLC or AGI to MEG for the time being.

      Comment by Gus Cosio | July 21, 2010 | Reply

  4. Sir Gus,

    I had seen your comment on DGTL to the effect that after several years the Gokongweis had gain critical mass on it and consequently on the telecom business on their own.

    I cant help but notice it in other business that they are into, say the airlines. While they are only a significant majority in UIC, Singapore economy is poised for a growth of more than 12% this year already the highest in Asia, Ive read. And instead of say buying back shares in JGS,(with the volume and price spike in JGS, a buy back may send the share price higher significantly) they slowly continue to build up holdings in UIC.

    If URC continues with its growth in Thailand and Vietnam and in other Asian countries, then the group had started a footprint towards an even bigger market, Asia.

    A friend mentioned to me that this group targets the mass market and that such is a majority in the Philippines. True I think.

    I cant help but admire those behind this company and see that investors also slowly taking notice of the same.

    Thanks

    Comment by alex | July 20, 2010 | Reply

    • Good point, Alex.

      Comment by Gus Cosio | July 21, 2010 | Reply

  5. Hi Sir,

    Which stock would you prefer to average down or increase holdings JGS, DMC or DGTL? I have found some extra cash and rather than distribute them to all 3, i was thinking of focusing on one stock for now.

    Thanks 🙂

    Comment by Brian | July 20, 2010 | Reply

    • No question for me Brian, It’s DGTL.

      Comment by Gus Cosio | July 21, 2010 | Reply

  6. Hi Sir!

    Thanks for your clear explanation in regards to the outstanding bidders. Just a follow up.. how now does the international scene in particular, the DJIA relate to our market? I noticed that whenever this index dips, most likely the next day would be a bloodbath in our market. How then are these people placing outstanding bids and offers affected even though the DJIA is separate from our index? Or am i mistaken?

    Thanks! 🙂

    Comment by Starter | July 20, 2010 | Reply

    • Starter,
      In all markets of the world, they look at the U.S. indices as bell weather for direction as their respective markets open. After that, local sentiment starts to work its own dynamics.

      Comment by Gus Cosio | July 21, 2010 | Reply

  7. Hi Sir!

    What do you think would be the steady value of PNB after the merger? I was thinking that the price may be valued at let us say 48 for now but when the merger actually takes place and the price slowly climbs up to 48, what would prevent this price from dipping due to profit takers? If most people decide to sell, could the price actually fall back to the 30s level?

    Comment by Long term | July 20, 2010 | Reply

    • Long term,
      If PNB falls down to 30, a lot of buyers will step up. When people get convinced of PNB’s earning power, they may even attach a premium to its prospective book value which I estimate to be 48 after the merger. Some people are even looking at 55. I prefer to be conservative at 48.

      Comment by Gus Cosio | July 21, 2010 | Reply

      • I computed book value at 45 after the merger. Good luck to all of us!

        Comment by WitcH | July 21, 2010

  8. Hi Sir Gus,

    Indeed PNB is a two bagger… i just unload my PNB ( am satisfied with my earnings already) and buy DGTL at P1.44… am crossing my fingers that such was a good move… Thanks for your insights…

    Comment by tatels | July 20, 2010 | Reply

    • Tatels,
      My fingers, too, are crossed on DGTL.

      Comment by Gus Cosio | July 21, 2010 | Reply

  9. Sir Gus,

    There are rumors that 2 big banks are eyeing to buy PNB out. I read about this in a forum and a blog. They even named the banks: BPI and SECB or CHIB. I know it’s still a rumor but if it’s true, will it be favorable to us, shareholders?

    Comment by Dez | July 20, 2010 | Reply

    • Hi Dez,

      BPI doesn’t seem right, most Metro Manila branch locations of those two are too close to each other. However, the US operations of PNB might interest them. On the local front, SECB and CHIB are more likely since they don’t have as many branches nationwide. I don’t know if they can afford it though.

      Comment by Mal | July 21, 2010 | Reply

    • Dez,
      the message is essentially that compared to its banking franchise, the price of PNB is dirt cheap. In spite of their legacy problems (which incidentally has mostly been cleaned up), PNB is still the leader in OFW remittance due to their first mover advantage. They are also a leader in LGU finance (again a first mover advantage). In the 90’s, they owned a huge part of the investment banking market and I’m seeing that they are trying to regain market share. PNB should be a good buy for any of those banks you mentioned.

      Comment by Gus Cosio | July 21, 2010 | Reply

  10. 2 rumors is better than one..buyout and merger…..just sold my PNB last week….planning to buy again next month if it goes back below 34…

    Comment by mark | July 21, 2010 | Reply

    • Hey mark, don’t hold your breath until it gets to 34.

      Comment by Gus Cosio | July 21, 2010 | Reply

    • The MERGER is no longer a rumor. 34 is history, but as sir Gus said, 48 is the future. (hey, it rhymes!) Good luck.

      Comment by jojo | July 21, 2010 | Reply

  11. Hi Sir Gus,

    Any insights about the coming of the new PSE system. What its implication especially for tsupiteros. and the one day trading, seems its a very tiring to sit all day watching price actions.

    Thanks in advance…

    Comment by Cliff | July 21, 2010 | Reply

    • Cliff,
      You’ll have to talk to your on-line provider. I am still trying to digest the email that my on-line provider sent me. I think it is neutral though.

      Comment by Gus Cosio | July 21, 2010 | Reply

  12. Sir Gus, If you were to start a portfolio right now of 5 stocks what would it be? I’m still a newbiew sir..

    Comment by Jane | July 21, 2010 | Reply

    • Jane,
      If I were to start today, these would be DGTL (telco), AP (power), DMC (infrastructure), PNB or MBT (finance), and PX (hard commodities). I would also consider taking in some TEL for dividend yield. Choose among these for your five. I think you’ll be happy over time.

      Comment by Gus Cosio | July 21, 2010 | Reply

      • Sir Gus,

        I have DGTL and PX in my portfolio, but i have EDC instead of AP for the power sector, and RLC for infrastructure. What do you think sir? Am i going to be happy over time too just like Jane? hihi

        Comment by KennyV | July 21, 2010

      • You’re so kind Sir! Thanks!

        Comment by Jane | July 21, 2010

  13. Hi Sir Gus, as always thank you for finding time to share your valuable insights. As for DGTL subscribers reaching 10 billion, i have no idea that its technology is so advanced that it can also serve the non-human species (the world population is ~ 7 billion), hehe i`m kidding po.

    But as an update, the total subscribers of DGTL is now more than 15 Million and its broadband service is getting better reviews recently. Also, it has become “daw” the market leader in the postpaid mobile service (based on SEC annual reports) as posted here: http://www.techpinas.com/2010/07/sun-cellular-blackberry-services.html. If the 2nd quarter report is well within expectations, you are probably right again that this is another valued investment.

    Comment by Chris M. | July 21, 2010 | Reply

    • Sorry about that Chris,
      I guess in my zeal for the numbers of DGTL, I claimed the globe and future generations as subscribers. I have corrected the exuberant claim already and brought it down to an earthly 10 million. I stand corrected also if you have information that it is up to 15 million. On a statistical sample, in my family for instance, we have 8 cell lines. I’m on smart, my wife, a son and 2 daughters are on globe, and a son and a daughter are on sun. It used to be that we were all on globe. So globe lost 3 lines, smart gained one and sun gained two. I know other families and their businesses that had migrated to sun.

      Comment by Gus Cosio | July 21, 2010 | Reply

  14. Sir Gus,

    What do you think of IMI? We are seeing some action these days.

    Comment by Dez | July 21, 2010 | Reply

    • Dez,
      I do not like IMI at present. it’s very expensive and no promise of stability.

      Comment by Gus Cosio | July 24, 2010 | Reply

  15. Are you guys able to access the PSE website today?

    Comment by Dex | July 21, 2010 | Reply

  16. Sir Gus,

    My concern with Digitel is that Sun Cell seems to have made its living, despite inferior reception, on the call and text unlimited promo. I suppose having reached critical mass, it is now in the profitable stage as opposed to just the startup stage. However, recently, Globe and Smart have come up with their own packages that offer unlimited text and and calls, albeit, slightly more expensive.

    How do you think this will play out? My concern is that while current subscribers might maintain their account, their expected subscriber growth might slow down dramatically, going forward.

    Thanks!

    Regards,

    Warren

    Comment by Warren | July 21, 2010 | Reply

    • Warren,

      I for one thinks that DGTL has a descent amount of postpaid subscribers locked on for 30 months, this is because of their uberly affordable plans and promos. I think it would’nt be that easy for Sun to loose subscribers at the time being.

      Comment by KennyV | July 21, 2010 | Reply

      • woops that’s “decent”

        Comment by KennyV | July 21, 2010

      • Haha yeah.

        Comment by Warren | July 21, 2010

      • My worry though isn’t the loss of current Digitel subscribers but a decrease in rate of new subscribers in the future. As you may know, analysts are always forward looking. If you want to sell next quarter then its next quarter’s earnings that matters, not this quarters’.

        Comment by Warren | July 21, 2010

  17. Sir Gus,
    DGTL seem to be one of the stocks to watch. Would you recommend buying DGTL even if you hold URC in your portfolio or just add position in URC?

    Comment by thewingedpalate | July 21, 2010 | Reply

    • Yes, I would buy DGTL and URC together. They are two separate businesses with no correlation to each others performance.

      Comment by Gus Cosio | July 24, 2010 | Reply

  18. Sir Gus,
    Sir any insight to EDC? I think i has a good volume today.. Thank you..

    Comment by jaayem | July 21, 2010 | Reply

  19. Sir Gus,

    Thank you for your insights on PNB! I was able to sell my shares at P37.50 for 20% gain, which is on target. Unfortunately for me, though, the stock has gone up in value.

    I would like to ask for advice on “moderating my greed”. The first time that I was too greedy, I wasn’t able to sell my AC at its 52-week high for around 15% gain because I thought that wasn’t enough. When I stopped being too greedy, I was able to sell my MER and my AC at around 10% gain right before the stocks went down in value. However, for PNB I wasn’t too lucky with this not-so-greedy strategy.

    In playing stocks, is it better to have a target price, or to always aim for the highest possible price?

    And also Sir, with my earnings in PNB, would you advise to switch to DGTL, or to buy PNB again when it goes down to around P36?

    Thank you Sir!

    Comment by newinstocks | July 21, 2010 | Reply

    • Hey there newinstocks,

      I, myself, haven’t been trading for very long but I believe that the best time to sell is similar to the best time of buying… when your comfortable and happy about the price. I had the same problem before but all that was of course before I started reading Sir Gus’ advice on his blog and this book by Benjamin Graham called “The Intelligent Investor”. Check it out.

      Norman

      Comment by Norman Go | July 21, 2010 | Reply

    • If I end up selling and the price goes up after. I tell myself that “hey, I made money.. No use crying over spilled milk”

      Comment by Norman Go | July 21, 2010 | Reply

      • hi norman,

        i totally agree with you! it’s still better to earn a little than to lose a little

        Comment by Sonn | July 21, 2010

      • Thanks for this advice, Norman!

        Comment by newinstocks | July 23, 2010

  20. Manong Gus,

    Thanks for your insights, got PNB in my list..and you’re right! From then on, I always make sure to check your blog first before I trade.

    May your tribe increase…

    Comment by Ricky Castro | July 21, 2010 | Reply

  21. Hi Sir Gus,
    Is it still ok to buy PNB at 38? Thanks!

    Comment by ixia | July 21, 2010 | Reply

  22. Hi Sir Gus,

    Same as the post above.. Should we wait for PNB to correct? I have a feeling though that it will go all the way up. Is it still ok to buy at 38.5?

    Comment by Jude | July 21, 2010 | Reply

  23. hi Sir Gus!

    what would you consider as your top 5 investment books?

    thanks! 😀

    Comment by Jack B. Nimble | July 21, 2010 | Reply


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