Gus Cosio says so

Ideas on the Philippine Stock Market

It is no time to argue!

7:00pm  Thursday   19 August 2010   Philippine Stock Exchange Index  3560.39 (+0.72%)

Another strong day for stocks and what is even more encouraging is the fact that value turnover has been increasing.  We’ve had 4 straight days of gains which has been spread out over a relatively wide range of issues, and value turnover crossed the Php 5.14 Billion.   The scuttlebutt is that a few foreign funds are accumulating large cap stocks  in order to satisfy their allocation to the PSEi.  The traded value for TEL was approaching Php 1 billion while MBT value turnover was Php 871 million.  MPI turned over Php 722 million which is a pretty high volume for this stock suggesting that some foreign buying is going on in this stock.  One thing is for certain – institutions are buying with conviction.  Coming during the ghost month, it speaks volumes on how investment capital is flowing to our market.

I know many of us had taken positions in MPI given the very impressive 1H2010 results that the company reported.  To my mind, MPI may be viewed as the top infrastructure play in the Philippines because of Meralco, Maynilad and Manila North Tollways.  It is also developing other projects, but with future cash flows looking strong from these existing businesses and an equally cash rich affiliate in PLDT, MPI will continue to attract new players.  Momentum for the stock will likely carry it past 3,50 in the coming days with 4 as an intermediate objective.  I think holders of MPI can sleep pretty soundly over the next few days.

Looking at EDC, I notice that beyond 5, the price started to stall.  The stock had good volume so I do not think the play is over for the stock.  I think it should just be consolidating.  I would suggest some caution on EDC as it appears that profit taking is going on with these Lopez stocks.

For those following JGS, there appears to be some accumulation going on in the stock.  My only problem with JGS is that I can’t seem to get enough information to raise my level of comfort.  Unlike URC and RLC which are well researched, JGS does not seem to attract the analysts.  URC and RLC will continue to perform due to their good results.  DGTL, the most controversial member of the family, seems to be stuck around the 1.40 level.  What I like about its price action is that it looks well supported here and once more of the shares get put away into stronger hands, the stock can eventually make it move.  It will take some patience, but there are no free lunches.

One stock that has been going the other way of the market has been AP.  I am one who appreciates this move because I had sold the stock earlier on the idea that because it had increased almost 600% since April 2009, it is just too tempting to take profits.  The funny thing is that AP is very cheap, trading at 8.15X trailing PE and if you believe the forecast, it is trading 6.8X 2010 earnings.  There is no bargain better than AP right now.  I suggest that those entering the market in the next couple of days to seriously look at this stock.  The stock price is dropping which should make it easy picking.

I would encourage readers to look at stocks other than those being mentioned here.  It would be useful for readers to see how others feel about the different stocks.  There have been those asking about CHIB and RCB.  I think those stocks are worth a look.  For those that want to avoid volatility but want to get their feet soaked in the market, there is always AC and BPI and possibly ALI which are all large cap stocks and are in the picking menu of foreign funds.  For the brave of heart, you could study VLL and have a good look.  One fund manager tells me that it is trading at 0.57X Book Value and trailing PE is a very undemanding 10X.

I guess the message is that no one looks to be afraid of the hungry ghost and I will not argue the point otherwise.

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

58 Comments »

  1. Here are the stocks that I own, and some of the reasons I own them

    CHIB, SECB – Uninterrupted Dividends (+Stock for CHIB)
    MPI – Classic monopoly play. anti-GLO
    COAT – Biodiesel law escalates from B2 to B20 by 2020.
    5%div. My attempt to channel my inner peter lynch
    and find that unknown company thats gonna be a ten-
    bagger..
    EDC – Can’t live without power
    VLL – It should be closer to 4p.
    SHNG – NAV is 3.8. 5% div. Hotels+Mall+Parking. EPS growing
    year by year. But might not last as I need the money
    for brighter stocks.
    DGTL – Pure Speculative play. Not entirely convinced
    telco industry is where I want to be at all.

    Basic strategy:
    Should have Low PE, below BV(/FV).
    Buy and hold. Will not take profits this year at all. This should be companies I’m willing to own for 3-5yrs. Basically, these are my horses and I’m riding them till the end.

    These are my cards – Feel free to educate me.

    Comment by jasper | August 19, 2010 | Reply

    • Thanks for sharing, Jasper.

      Here’s mine. I’m also comfortable holding all my stocks long-term or short-term (if the offer is too good to resist).

      MBT, PNB
      For: Both have claimed the title of ‘biggest bank’ at some point in their history. Led by competent managers. Sir Gus worked for them at some point.
      Against: Earnings tied to the economy.

      MPI
      For: Same as Jasper’s.
      Against: Just went gut feel on this one and didn’t study the profiles of the managerial teams.

      DMC
      For: Reliable partner of MPI
      Against: Just went gut feel on this one and didn’t study the profiles of the managerial teams.

      TEL
      For: Has no problem matching DGTL’s aggressive marketing moves, entrenched in the call-center biz, annual dividends
      Against: I have no idea how they will address our slow Internet speed cheaply. The company that can do that will destroy its competitors.

      PX
      For: Copper is still the lifeblood of electronics.
      Against: Not good for the environment.

      GMA7
      For: They’re nice to their people and their shareholders.
      Against: Entertainment is a cut-throat business.

      Strategy: Either little or no debt. If they do have debt, they must have a sure revenue stream even in the event of an economic downturn. They must also be led by competent and loyal managers.

      Comment by Mal | August 19, 2010 | Reply

      • Mal,
        I think you make a lot of sense also although I am not of the belief that mining is not good for the environ per se. I think it is irresponsible miners that are bad for the environment. In Australia, they have managed to transform old open pit mines into environmental oases.
        On the management teams of MPI and DMC, I know some of them personally and I think these companies are in good hands.

        Comment by Gus Cosio | August 20, 2010

    • Add Pepsi if it goes near 2/sh…..

      Comment by jay | August 19, 2010 | Reply

    • Your inner Peter Lynch may want to study FDC and JGS.

      Comment by Warren | August 20, 2010 | Reply

    • Jasper,
      those are excellent ideas. I hope many others learn to manage their personal portfolios the way you do.

      Comment by Gus Cosio | August 20, 2010 | Reply

  2. Sir Gus,

    Indeed there seems to be lack of research with regards JGS. However, among local conglomerates, I think it is a good play on the consumers and have very good growth prospects. We may like URC and RLC but at the end of the day, JGS’s is in firm control(operating cash flow included) more than 60 % of those.

    Thanks

    Comment by alex | August 19, 2010 | Reply

  3. Hello guys & Sir Gus,

    Im divided between picking DMC or Ap. I am comfortable owning either of them but in your opinion, which one would be a better medium term hold?

    Thanks!

    Comment by Mike | August 19, 2010 | Reply

    • Medium term hold I believe DMC would be a better pick since volumes and demand is flat to high. AP is better of for the long term hold. Just my opinion

      Comment by Foreign Investor | August 20, 2010 | Reply

  4. Buy MPI if it goes down to 3.25 , avoid Lopez Stocks very overbought might correct until next week…

    Comment by mitch | August 19, 2010 | Reply

  5. Sir Gus, do you still like DGTL despite the fact that foreign investors are continuously dumping it? Some people considered DGTL a “basura” stock. Any thoughts on this? Thank you.

    Comment by Jolly | August 19, 2010 | Reply

    • This is my understanding of Gus’s posts regarding DGTL. He is of the view that DGTL the business(Sun cellular, Landlines, etc) will turnaround and will be profitable from now on. It has doubled the subscriber base compared to a few years ago, and the stock is 25% cheaper too (2 vs 1.4). So something has to give.

      If you think DGTL the business will really turnaround, then the current price of 1.4 is cheap. But even if business is good, who knows when the price will go up. (But sooner or later stock prices will reflect the underlying intrinsic value of the business though.. as per Ben graham)

      That is my understanding of based on Gus’s posts.

      And now, this is my added opinion: To base buying and selling on what foreign houses will do is not a winning strategy.

      Comment by jasper | August 20, 2010 | Reply

    • Jolly,
      I think Jasper has articulated my view of DGTL. This is a company that has frustrated a lot of fund managers in the past and that is probably the reason why they are dumping this stock. My view is that there is where the opportunity lies. Telcos are not in favor in the past few months, but that is not to say that sentiments will not change. I am betting that the strength that we will see in the Philippine economy in months to come will once again provide tremendous cash to telcos and DGTL will be a cheap beneficiary of the move. My buy program for the stock is a slow accumulation.

      Comment by Gus Cosio | August 20, 2010 | Reply

  6. bloody DOW tonight.. good luck on our bargain-hunting tomorrow!

    Comment by Sasuke-kun | August 19, 2010 | Reply

  7. re DGTL, momentum stalled due to losses incurred in Q2…

    Comment by glacier | August 20, 2010 | Reply

  8. Dear Sir Gus,

    The price/volume actions in both MEG and FLI are very dynamic and constructive. Do you have any insights on these two, Sir?

    As always, thank you.

    Comment by Aika | August 20, 2010 | Reply

    • Aika,
      Both MEG and FLI are issues which a lot of market punters like to trade due to their high volatility. For these stocks, it can be profitable to follow momentum traders.

      Comment by Gus Cosio | August 20, 2010 | Reply

      • Thank you, Sir, for the sound advice.

        Comment by Aika | August 20, 2010

  9. hi sir Gus!

    u said that the pe ratio of AP is at 10x how come when i checked the pse website the current PE ratio stands at 24? is there something here i do not know about? thank you for your time.

    Comment by pat | August 20, 2010 | Reply

    • Pat,
      I don’t think the PE measure on the website is not accurate.

      Comment by Gus Cosio | August 20, 2010 | Reply

      • The PE of the PSE website pertains to Prior Year EPS / Current Market Price.

        The current/trailing PE is the PE ratio based on current year EPS (Annualized or estimated) / Market price.

        I hope this clears it.

        Comment by alexis | August 20, 2010

  10. MPI seems to be taking a rest today. I can’t decide if I want to buy right now. This has been my problem. I know its still cheap, but why can’t I pull the trigger?

    If i just moved faster last week, my ave would have been lower. I mean, the money was just standing there waiting to be used.

    grrr.. maybe just buy a thousand shares? :dementia:

    Comment by jasper | August 20, 2010 | Reply

    • Just get some shares and join us as it attempts to break 4 next week!

      Comment by Anthony | August 20, 2010 | Reply

      • This issue seemed weak today but the overall performed well… A noticeable out performer compared to the Asian Markets

        But MPI had strong buying during the run off period but volume was significantly low but will pick up…

        Comment by Foreign Investor | August 20, 2010

      • I got a couple of thousand. And guess what? I was the last buyer!!

        Time: 12:09:34
        Price: 3.4
        Volume: 2,000

        I read somewhere that in every transaction one of you(buyer/seller) is wrong. So who is wrong in this instance? Me or the one who sold? We will find out in a year or so..

        Comment by jasper | August 20, 2010

    • Wait for MPI’s price to pull back. Both the index and MPI are already on their overbought levels. I plan to buy this when it pulls back to its support, which is its previous resistance as well of 3.25.

      Comment by Norlan | August 20, 2010 | Reply

  11. hi sir gus,

    Would be categorize ATLAS mining (AT) as a turnaround story since they started earning in the 2Q of 2010 and would you recommend it a BUY? Appreciate your view. Thank you and God Bless.

    Comment by richmond | August 20, 2010 | Reply

    • Richmond,
      AT is a mining company and the reason why the stock was not moving before was because the operations were on a low production capacity. Now that they are shipping out regularly, this is why the stock is moving. It is a matter of having little or no earnings in the past and having more earnings now. It also faces the prospect of higher commodity prices a few years down the road.
      Whether it is a buy or not, I can’t say because what mining analysts look at are the cost of production and the future prices of commodities. I am not an expert in forecasting commodity prices.

      Comment by Gus Cosio | August 20, 2010 | Reply

  12. Sir Gus,

    A representative from my broker told me that JGS has “90% stock convertible” with DGTL, I did not really understand what that means, but according to her, because of that reason I should not touch DGTL. Would like to hear your thoughts sir, thank you and more power!

    Comment by KennyV | August 20, 2010 | Reply

    • Kenny,
      JGS is the parent of DGTL. They have been funding whatever accumulated loss DGTL has been incurring, hence the reason for the convertible debt. In fact, bankers would always treat advances from major shareholders as quasi-equity. Your broker is making an assumption that JGS will convert their debt and then dump their shareholdings. Let me ask you, is there good logic in that? Wouldn’t JGS want to see the value of its convertible debt go higher with the higher price of the share. After all, that price appreciation would be what would compensate them for financing DGTL’s operations. Does this make sense to your broker? What do you think?

      Comment by Gus Cosio | August 20, 2010 | Reply

      • I agree with you Sir, there is no point with JGS dumping its shares with DGTL now that it has finally transformed its business into profitability. Thanks for clearing that up Sir Gus, you’re a blessing to all your readers 🙂

        Comment by KennyV | August 20, 2010

  13. Since I can’t decide between AP@19, DMC@22 I tried to determine some numbers. One of the rules from Intelligent Investor: PExPB should not be more than 22.5

    AP:
    EPS(Annualized): 3.456
    BVPS : 6.1
    PEx : 5.5x
    PB : 3.11
    PExPB : 17
    DMC
    EPS(Annualized): 3.148
    BVPS : 10.8
    PEx : 6.98x
    PB : 1.99
    PExPB : 14

    I don’t know if my numbers are correct but if they are, 17 and 14 are tantalizing numbers to be sure (Though: DMC is cheaper).

    Comment by jasper | August 20, 2010 | Reply

    • Jasper,

      At times, that’s how I do some computations too although I’m more conservative than you. I should follow your posts and save myself the trouble! Both their PB is over Graham’s 1.5x limit although their P/B and P/E mix still isn’t over 22.5x. Please keep in mind that the average P/E of stocks in the US is higher than that of stocks in the Phils thus we should probably adjust Ben Graham’s limits. Sir Gus would know this but I think it’s around 12x here and 20x+ in the US. Btw, at what price would you be willing to part with your SECB shares?

      Comment by gp | August 20, 2010 | Reply

      • With regards to selling, there are only two ‘trigger’ points. None related to price:

        1. When the reason I bought in the first place is not valid anymore. 2. I found some other stock even more undervalued or with brighter prospects or both.

        In the case of SECB, it still have the low P/E, the div, and is below 22.5. So the buy reason still holds. Besides I don’t know if I sold and bought something like MBT if it will be as good as SECB is.

        I got this from Peter Lynch. Basically, He says if the stock is starting to perform, its best to ride it till the end of the story. Otherwise, you might end up reinvesting in something that will then under-perform.

        He calls this “Pulling the Flowers and watering the weeds”.

        Comment by jasper | August 20, 2010

  14. I’m quite amazed how our PSE perform today. Since the DJIA fall by more than 1%, I told myself this morning to wait till the stocks went down particularly MEG and FLI since this two are Dow sensitive. but I was wrong, these two issues continue with their strength.

    Sir Gus do you think SCC is a good stock? Isn’t it that it is quite expensive already. I used to have this stock before but I sold it when reaches the 100 level.

    Comment by Cliff | August 20, 2010 | Reply

    • Cliff,
      SCC is an excellent stock, but at this point I’ll gain exposure to SCC through DMC which is its parent company.

      Comment by Gus Cosio | August 20, 2010 | Reply

  15. Sir Gus,

    I am currently 100% invested in stocks.

    FGEN – power play and has been paying down its liabilities and indirect EDC play. Dividend can be expected in two years time.
    LPZ- ABS play. I am getting FPH for free.
    RCM – low PE and expecting higher dividends in 2009 as all its income from operations can be available for dividends. Cement industry is not capital intensive business and this is considered duopoly (RCM + HLCM.)
    TEL – dividend (8% yield) is better than T-bills
    MEG – property and trading below Book value.
    RCB – banking trading below PE. Banking industry is undergoing consolidation.
    DMC – Construction / Maynilad ownership/ SCC play /PE below 10.

    I normally like stocks with low PE, good management, dividends.

    The market is becoming stronger with volumes not seen before the credit crisis. Foreign brokers are coming in again.

    Comment by alexis | August 20, 2010 | Reply

    • Alexis,
      You have a very sound portfolio. I think you’ll see good performance over all for the rest of the year.

      Comment by Gus Cosio | August 20, 2010 | Reply

    • Alexis, when you say dividend yield of PLDT is 8%, is that computed as amount of dividend for the year divided by your average purchase price? Does it give roughly P190 dividends per share per year?

      Comment by Nel | August 20, 2010 | Reply

      • Nel,

        Dividend of TEL is normally composed of the following (regular dividends of 70% of net income + special dividend) :

        2008 – 192 inclusive of special dividend of 56
        2009 – 207 inclusive of special dividend of 60
        2010 – 219 inclusive of special dividend of 65

        Special dividend is sure as TEL does not have huge investments moving forward (Meralco in 2009).

        Dividends are normally declared on the date when the results are disclosed (1st week of March and August). Special dividend is declared in the 1st week of March as well.

        Comment by alexis | August 20, 2010

  16. Our Market today was very Euphoric i think it will last until October………2 months to go PSE 3750…..

    Comment by Cindy | August 20, 2010 | Reply

  17. Hi sir gus,

    What’s your take on mining stocks like NI, ORE and PX? Do you think holding NI will be profitable in 6 months to 1 year period?

    Comment by Jane | August 20, 2010 | Reply

    • Jany, just want to share my experience with NI and ORE. This 2 stocks is being jockeyed so be careful when you decide to buy it. You may end up losing (just like me – a newbie) when you are not familiar with the jockey moves, so my advise take study first of the price action and perhaps you can see some trends.

      Instead of focusing with ORE & NI, why don’t you look for others as there are a lot of good stocks out there with good fundamentals

      Comment by Cliff | August 20, 2010 | Reply

      • in regards to mining stocks right now as Jane said only those who wanted to take profit from it by making others believed that they have confidence on it and then get out when price rises up are the one that earns from it. Metal and ore prices were are now it way going down after the the sudden rise a month ago.

        Mining companies have some BL problems due to their need of huge CAPEX to fund mining operations. Debt to equity ratios are so high that is why it is hard to put your small money in such uncertainty.

        Comment by Louis | August 20, 2010

      • Jockey or not Stocks can go down….When the BigFundies start unloading even Mr.Einstein will end-up losing a lot….

        Comment by mitch | August 20, 2010

  18. I wonder who’s been buying SHNG. The broker MANDARIN just bought 300k shares today. :headscratch:

    And sure, my inner peter lynch will try to study JGS. But later when I’ve had my fill of MPI. I just need and additional 2% more so it will be at max 20% of my holdings.

    And I think I remember why I was wary of filinvest. It must not have been paying dividends lately I think. Can’t remember.

    Comment by jasper | August 20, 2010 | Reply

  19. Sir Gus,
    Any thoughts on my portfolio. PNB 55%, MPI 25%, AP 5%, DGTL 5% DMC 5% EDC 5%. All are in the black at current prices. Where do you think I could put more weight to max returns in the next 2 weeks? objective is to take profits by Jan2011. Do I add more cash? Just like you I would like to wait for PNB until its true potential is realized before slicing some positions.

    Comment by Mark | August 21, 2010 | Reply

    • Mark,
      My suggestion would be to reduce PNB since you’ve benefited from its long term move. Reallocate what you sold to AP so you can raise it to 25%. You can also raise DMC to 15%. The reason I’d do that is I see around a 15 to 20% more to go with PNB, but I see a 50 to 60% move in AP over the next 6 to 12 months. I see 40 to 50% move in DMC.

      Comment by Gus Cosio | August 21, 2010 | Reply

      • I posted that to gp that I don’t sell based on price. However, i see that it is a common strategy. Do you sell your stocks when they’ve gone up say 50%? Sell half and then invest in another stock, something like that?

        Comment by jasper | August 21, 2010

      • Jasper,
        As a strategy, when I am tempted to take profits, I ask myself if at the point I would still be interested in buying the stock. If my answer is yes, then I hold. As a money management technique, however, I would top-slice i.e. sell an amount representing some profit but keep the principal amount invested in the stock.

        Comment by Gus Cosio | August 22, 2010

      • Thanks Sir. appreciate the inputs.

        Comment by Mark | August 21, 2010

      • As for me I sell an amount representing the principal amount invested and I keep the profit invested in the stock.
        I sold my SCC and bought DMC and I also sold my PNB to buy MPI.

        I did it because I already earn a decent amount on those stocks. I dont know if im doing it right.

        Comment by Ryan | August 22, 2010

  20. Sir Gus.

    Thanks for your guidance.

    Was able to ride PNB’s course, had a 48.74% gain yesterday at 44.9. Bought my shares at an average of 28.5

    Comment by 2ndwrong | August 21, 2010 | Reply

  21. Hi sir Gus,

    May i ask about bonds? I noticed prices of sovereign as well as private bonds are rising these days. What is your take on this and where do you see the prices going in a months time?thanks

    Comment by paul | August 21, 2010 | Reply

    • Paul,
      I spent a good portion of my life trading bonds. It is a far different animal from stocks. It is more of a game for instituions if you want to trade it. Just to give you a perspective for comparison, 25 year ROPs give you a Yield-To-Maturity of 5.6%. It has a current yield of around 6 1/2 %. TEL gives you a dividend yield of 9%. Of course, the risk profile is different. At the end of the day, however, it is really going to be how much money will be left in your pocket. What would be your view on that?

      Comment by Gus Cosio | August 22, 2010 | Reply

  22. im getting out of the market, my timing is very bad just when stocks are really going up….. just cant stop mpi train

    Comment by gerald | August 21, 2010 | Reply

    • Gerald,
      I suggest that you consolidate your portfolio and start all over again. Our market has a long way to go simply because a lot of stocks have cheap valuation. Remember,a quitter never wins.

      Comment by Gus Cosio | August 22, 2010 | Reply

  23. To All Newbies Dont BUY stocks..were in DEEP correction right now……… PLEASE if you dont know what your doing avoid the stock market….Caveat……….

    Comment by Sam | August 24, 2010 | Reply


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