Gus Cosio says so

Ideas on the Philippine Stock Market

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?

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July 23, 2010 - Posted by | Financial markets in Asia

29 Comments »

  1. Sir,
    Do you think PNB is due for correction already? AP and DMC movement not impressive in the last 5-7 trading days, do see correction? MPI seems to be in your radar now. I’ve holding this at a loss for the last 9 months. sold it for PNB and recovered these losses. I’m only 20% invested with only DGTL and sitting with lots of cash. Sold all PNB already at 40% profit. If you are in my position, what would be your order of priority in buying at current prices – AP, DMC, PNB, more DGTL, MPI, MER?
    Thanks

    Comment by Mark Anthony | July 23, 2010 | Reply

    • Mark,
      First of all, I would not be an aggressive buyer of anything right now, meaning I will post at a price I am comfortable with rather than buy a stock at the ask price. That is because, I do not see a strong run-up in prices in the coming week.
      If I were to buy something today, it would be MPI at 2.60 or below, then DGTL at 1.44 or below, then AP around 18.50, then DMC also around 18.50. I would also be considering TEL below 2400, if it’s any use.

      Comment by Gus Cosio | July 24, 2010 | Reply

      • Thanks sir for your inputs.

        Comment by Mark Anthony | July 25, 2010

  2. Hi Sir Gus and followers, Please note that Mr. Acevedo, current CEO and President of PNB categorically denied the speculations that PNB is in talk with any buyers. The current estimate of Bloomberg is that “PNB is trading at 0.99 of its estimated 44.08 peso book value a share”. see: http://mobile.bloomberg.com/apps/news?pid=2065101&sid=aNnlpC7DVL0U

    Sold all my positions today at 41 then 43 for a very satisfying gain! PNB traces closely its previous price action and my estimate is that it can move at most to 45, but anytime next week, it will consolidate in 38 to 41 range then 36 to 40 while preparing for another take off possibly all the wayto 55. That is just me, of course. My observation is that as compared to US and european market, the “memory” of price actions in PSE stocks have a higher tendency to be repeated. I surmise this is a natural consequence of having fewer players/traders.

    At the current prices, I think investing to DGTL, MPI, EDC/FGEN, PX will be safer and more profitable in the next few weeks.

    Comment by Chris M. | July 23, 2010 | Reply

    • Thank you for Chris for sharing this info about PNB.

      Comment by alex | July 24, 2010 | Reply

    • Thanks Chris,
      I think those are very valid points. I agree with money management as a portfolio strategy. Taking profits when they are already hefty is always good, even if the stock moves higher. I don’t cry over spilled milk, and like you suggest it’s best to move on to the next play. I quite agree with your choices and I would choose EDC over FGEN.

      Comment by Gus Cosio | July 24, 2010 | Reply

      • Alex, Sir Gus, this site is a gem and am just happy to be a small part of your advocacy to make Filipinos more financially responsible. Sir Gus, you are developing “cult” followings in this side of the world. And i can’t blame them, you are making us better individuals.

        In Singapore, 33% of the adult population are into stocks/equities, while in our country only 1% are active (about .5 million). No wonder, many of us will not feel immediate improvement brought about by economic gains. Understanding the market and thus the economy normally improves our patriotism and allow us to make a more objective value judgment on the strengths and weaknesses of our leaders/visionaries/prophets.

        Just an additional information, EDC posted a 5.7 Billion profit in the first half, up by more than 110% from last year. I suggest not being so conservative in positioning to this stocks in the days to come.

        Comment by Chris M. | July 25, 2010

  3. am alrready in mpi dgtl a long time ago am stuck in a rut when do u see these stocks to give me a return ?

    Comment by gerald | July 24, 2010 | Reply

    • Gerald,

      You seem to be buying when stocks are at their peak as in the case of MPI and DGTL? How about the valuations? Are these factored in your buying decisions? Assuming you are convinced of the fundamentals, why not consider averaging down? If you bought DGTL at 2, buying at 1.4 will lower your totals and may shorten the time that you can get out at a profit.

      Im afraid nobody will have a definite idea when will MPI and DGTL go up in price.

      Tks

      Comment by alex | July 24, 2010 | Reply

    • Gerald,
      I have actually posted my buying orders on DGTL and MPI but I was to conservative. My bids were not hit. I am watching the price action to see if I chase or pick up. Being the end of July, I’m pretty cautious of the coming August. Historically, stock prices do not rise in August 4 out of 5 occurrences. It’s a global phenomenon.

      Comment by Gus Cosio | July 24, 2010 | Reply

  4. Start cashing on your gains and prepare everything(start buying on dips) during ghost month hold it for 2 or 3 months..Pse 3750 is coming…

    Comment by jake | July 24, 2010 | Reply

  5. Hi Sir and everyone,

    I have no idea there is trading on Saturday morning what I saw surprised me (in a good way though) lots of regrets, but I made a good gain which was more than I expected. For a newbie I think the experience of investing in stocks is more than a good lesson, through all the ups and downs as long as you know what you’re doing and you’re doing the underlying research with the stocks you’re buying.

    Instead of asking more questions I think I would rather give the rest their share of discussion so I could learn more and see where we are heeded in the future – the 4,200+index that happened today was not just a big bang, guess it was a sudden pour of torrential buying and fireworks display that makes me tongue tied…I’m giving you all the floor now guys…God bless the Philippines and may we not forget to share our blessing to the poor and the needy.

    Newbie

    Comment by newbie | July 24, 2010 | Reply

    • There is no trading on Saturdays. Today, brokers came in to rehearse for Monday’s change over to the new trading system.

      Comment by Gus Cosio | July 24, 2010 | Reply

  6. Hi sir,

    What are your suggestions for this coming August? I have heard a lot saying that prices here become sluggish and that its wiser to hold on to cash? I have just started trading this July and i’m currently holding DGTL @1.47, DMC @17.6, JGS @16.3 and PNB @34.3. Would you suggest unloading this week and then hope for dips in what people call the “ghost month”? I have noticed that my prices are cheap but does history send these prices lower during Aug?

    Thanks! 🙂

    Comment by Kenn | July 24, 2010 | Reply

    • Hi Kenn,
      I think it may be time for you to take some profits on PNB and Possibly lighten up your positions on JGS and DMC. You could sell 1/3 of your JGS since you already own some DGTL and 1?4 of your DMC. That way, you’ll have some cash to buy whatever comes cheap in August. Remember, we are still headed higher. August is just a month of consolidation.

      Comment by Gus Cosio | July 24, 2010 | Reply

      • Thanks sir. What has been the story behind the slowdown of the market every august?

        Comment by Kenn | July 24, 2010

      • Kenn,
        It is really a combination of seasonality and superstition. In major financial centers, the big investors take their vacation in August, so the participants in the market get somewhat reduced bringing down trading volume. In Asia, the Chinese believe that the spirits of some of the dead become hungry this time of the year and start to wander the earth. This is why in Hong Kong, Singapore and Taiwan, you see people burning “hell money” in urns around the city to appease the hungry ghosts. Such psychology becomes self-fulfilling because the sentiment can sometimes become so widespread.

        Comment by Gus Cosio | July 25, 2010

  7. Sir Gus, is it still wise to chase pnb @ 43 and scc @ 100+? haven’t these 2 reached its momentum yet? when do you think companies will start posting their 3rd quarter earnings?

    thanks,

    biz

    Comment by biz | July 24, 2010 | Reply

    • art,
      Do not get me wrong when I say that it may be a bit on the edge to get into PNB at 43. While I think it is headed higher, it may see some heavy profit taking already. I still like PNB but, at this point the certainty is equal to many other stocks. Actually, my take is that you may have a better reward ratio in SCC or even MPI or DGTL at this point.

      Comment by Gus Cosio | July 24, 2010 | Reply

  8. Hi Sir Gus,

    I’m an OFW and a newbie on stock market. Consider myself as an investor than a trader. I’ve been following your blog for quite sometime and it help me a lot to pick a valuable stocks. Ive already taken profit on PNB @43 and still have 45% cash. What could you recommend for long term say 6 – 12 months, currently i got PIP,RLC,SMDC,EDC and DMC w/ only 5% of my portfolio. Try to bid for MPI and DGTL but too conservative and did not hit. My eye is focus on RCB, what is your take on this stock. Hopefully i could spread the beauty of stock market to my co workers as another means of investment, because most of us still rely on bank TD.

    thanks and good health,

    joseph

    Comment by joseph | July 25, 2010 | Reply

    • Joseph,
      You have a good looking portfolio already. It is in good sectors: SMDC & RLC (property), EDC (power), DMC (conglomerate), PIP (consumer). Do not be in a rush to add to your portfolio yet because given the global picture and seasonality factors, I do not think prices, with the exception of special situations like PNB recently, will be running away from us. I suggest that you continue to follow MPI and DGTL. For dividend yield, you could consider buying TEL around 2400; and if MBT goes below 55, you can also consider that.
      As to your other OFW colleagues, recommend them to consider investing in equity laced mutual funds. Have a look at http://www.save-and-learn.com and http://www.fami.com.ph which are investment literacy sites. It will get them informed about investing in mutual funds. These are investment funds which are designed to bring returns above the usual TD.

      Comment by Gus Cosio | July 25, 2010 | Reply

      • Sir Gus,

        Thanks for your prompt reply,the link you recommend are noted.Rest assured that i will personally spread the news.
        True i follow MPI and DGTL i believe on their fundamentals. Also like DMC but its expensive at this time. Been on the look out on TEL but will enter below 2400 and MBT @55 is a good buy.
        For dividend yields, how about the prepared shares ACPR and FPHP, the return are better than SDA. Whats your take on this?
        Still in the process of educating myself about financial literacy and your blog offers great help for us newbies.

        thank you sir and god bless,
        joseph

        Comment by joseph | July 25, 2010

      • I think ACPR and FPHP are good investments but they are not very liquid in terms of seeing supply. If you want to buy it, determine your price, then patiently post even if it akes a few days.

        Comment by Gus Cosio | July 25, 2010

  9. Hi Sir Gus,
    I’m a fan of your blog. But I wonder why you use wordpress.com instead of hosting your own website. You could be making a lot money with ads because of the heavy traffic on your blog. You could put google adsense and I’m sure companies would pay you to put their ads on your blog. Ask a web developer to make this happen.

    Comment by Dennis | July 25, 2010 | Reply

    • Btw, thanks for your advice on PNB. I bought 150T @29 and sold it @39! Too bad it went even higher after that…

      Comment by Dennis | July 25, 2010 | Reply

      • That’s water under the bridge. What is important is that you made good money, that’s 33% return in a few months. You did very well. Congratulations.

        Comment by Gus Cosio | July 25, 2010

    • Thanks Dennis, I’ll have to find time to do that.

      Comment by Gus Cosio | July 25, 2010 | Reply

  10. I actually missed the PNB play. I was watching and wondering if i’m gonna buy some time back, when it was @35 or so. The problem is, I wasn’t able to properly look at the books so in the end I didnt buy it. i.e. I only buy stocks where I am able to see the annual reports first,and determine from that if stock is below book value or if the p/e ratio is not too high.

    Anyway, your discussions here and the way you talk about ‘the story’ of a stock reminds me of Peter lynch.

    Comment by jasper | July 25, 2010 | Reply

    • Don’t worry Jasper,
      there will always be a stock to watch. It may not be a two bagger like PNB, but it will make you happy. In the meantime, have a look at DGTL or MPI because talking about stories, I think we are just about at chapter one in these stocks. Also, don’t be too fixated on annual reports rather try to be forward looking and get a hold of earnings forecasts because that is what really matters.

      Comment by Gus Cosio | July 25, 2010 | Reply


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