Gus Cosio says so

Ideas on the Philippine Stock Market

Thanks for your thoughts and prayers

I have some time to update this corner, and I would first like to extend my gratitude to all those who offered condolences. May God bless you all.

I was supposed to be in Cebu again yesterday and today for an investor briefing, but for obvious reasons, I could not make it.  Anyway, I wanted to go on-line today because of the excellent GDP numbers that was released today.  The economy grew by 7.9% versus a consensus of 6.3% made by most economists.  I would just like to set it on record that this writer had been saying all along that 2Q2010 GDP growth could exceed that of the first quarter this year.  If you recall, I had mentioned that Meralco sales as a proxy for economic activity was pointing to faster growth in its service area particularly from industrial users.  Such was a strong argument why I remained constructively engaged in the market.

In recent days, the hostage fiasco has been affecting investor sentiment, and rightly so.  If we cannot keep the peace in this country, business cannot prosper, and growth will grind down to its former slow pace.  I would like to be optimistic, nevertheless, that our enforcement agencies will try to improve their image and competence from now moving forward.  They really have no choice.  Of course, there will be drawbacks in tourism.  I hope the travel industry will be able to mitigate this by pointing out that in real tourism areas such as Cebu, Boracay, Bohol, Davao, Camsur, Camiguin, Laoag-Pagudpud, La Union and Baguio, these things hardly happen at all.  I think incidents such as these occur because there is so much concentration of political power, and by inference, economic power in Metro Manila.  As early as 1990, when I was living abroad, I would tell my friends that if they wanted to visit the Philippines, Manila is not the place to go.  I would recommend Cebu over Manila any day (although I was born here and lived here except for the ten and a half years I spent abroad).

As to the news that Hong Kong OFWs will be fired, my quick thoughts tell me that those that have animosity with their employers will likely be at risk of getting fired.  Those who have served their employers faithfully and sincerely, will not be fired.  If I were a humane employer, I would not attach the action of one crazy dismissed policeman to the character of my employee who gave me good service.  Tell me, if you had a domestic helper who helped you raise your kid and they did a good job at it (like most Filipino workers do), would your take this incident against her?  This thing will blow over in a few months.  It is a setback, but I don’t think it will take the wind off our sail.  This economy is strong based on domestic fundamentals.

Anyway, for Filipino investors who have been investing in ROPs, wow, it is time to take profits.  Twenty-five year ROP bonds are just yielding 5% to maturity and are priced at least with a $15 over par.  I think in less than five years, prices should come off and bring losses to many holders.  If you ask me, the safer and better yielding market bet is PLDT whether as TEL in Manila or PHI (the ADRs) in New York which would yield over 8% and I don’t think you’ll lose $15 on it.

As to the broader market, I think we’re in good shape.  I’ll have more ideas to share perhaps in the week-end.  God bless you all.

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August 26, 2010 - Posted by | Financial markets in Asia

53 Comments »

  1. Sir Gus,
    What do you mean by ROP prices will come off? ROP prices will go down in the next five years?

    Comment by tessa | August 26, 2010 | Reply

    • Tessa,
      ROPs are US$ denominated bonds issued by the Republic of the Philippines, RoP. These are very popular among Filipino investors.

      Comment by Gus Cosio | August 26, 2010 | Reply

      • Sir Gus,
        What’s your outlook on ROP bond prices will it continue to rise?

        Comment by tessa | August 26, 2010

      • Tessa,
        Like I said, ROPs are at their peak. Can you answer this question, “What happens when prices peak?”

        Comment by Gus Cosio | August 26, 2010

      • Ok, thanks Sir Gus

        Comment by tessa | August 26, 2010

  2. Another accurate forecast Sir Gus, you told us its 8.0% while everyone’s estimate is 5.9-6.3% ! We went all in yesterday in anticipation of this announcement. You. are. the. best!

    Comment by Chris M. | August 26, 2010 | Reply

    • Strongly agree! Right on the mark!

      Comment by Anthony | August 26, 2010 | Reply

      • well enough of GDP…..if you ask the businessman outside….they believe these figures are semi manipulated…dating back from Gma days….maybe these figures are the last of the manipulated ones……….lets see the next 3rd Q for a better picture of GDP…lets all be honest pls….

        Comment by MIKE | August 26, 2010

      • Im just wondering. How would the government be able to manipulate GDP figures? Don’t get me wrong, I understand their motives for doing so but I’m interested in how they’d execute it. And if it was in fact that easily manipulated, I’d assume that our GDP last year would’ve been “adjusted” to reflect a much better figure than 0.9%. Your thoughts, Sir Gus?

        Comment by marts | August 27, 2010

      • Would you mind sharing any evidence/data/computations to support your claim that the GDP figures were manipulated. You might want to read the actual report(http://www.nscb.gov.ph/sna/2010/2nd2010/2010qpr2.asp) before making such accusations.

        Comment by pinoyinvestor | August 27, 2010

  3. Me too, I am now fully committed. The only thing that makes me regret a little is that I wasnt able to dispose of SHNG and replaced it with DMC yesterday.

    Well, the GDP figures are certainly excellent. Lets hope it continues. We can certainly use good news.

    Comment by jasper | August 26, 2010 | Reply

  4. Sir Gus and fellow investors,

    Do you think it is still prudent to buy DMC at an almost 7% increase in price? I wanted to buy it yesterday but I had no cash in my trading account, sigh =.=! At current prices, If you were to choose between DMC, MPI or AP what would it be?

    P.S your thoughts on ORE sir? More power!

    Comment by KennyV | August 26, 2010 | Reply

    • Hi KennyV

      I’m not Mr Gus, but let me gather here what I inferred from he wrote about these companies. FV for MPI is 4 pesos (5.5 according to FirstMetro Analysis), DMC is 30 pesos, and AP is about 30 pesos too.

      I know you already know this but basically, all these stocks are still trading below their intrinsic worth. This is important because there is this tendency for stocks to rise/sink to their fair value. (According to value investors anyway. Dunno about technical traders).

      So if DMC is at 21, and FV is at 30.. there’s still some room for growth. But that is, if one is willing to believe that its really worth 30, and more importantly, also accepts that prices will on the long run try to reflect that value.

      But I’m not Mr Gus so I might not be correct in my assumptions.

      cheers.

      Comment by jasper | August 26, 2010 | Reply

      • Thanks for sharing your thoughts Jasper 🙂

        Comment by KennyV | August 26, 2010

  5. Sir Gus,

    I have very little knowledge of bonds. A family member has ROP 2016 and I told him that the market may have peaked according to some sources. We’re both confused though though about your statement regarding losing money 5 years from now. Is that because you think that the conversion rate would already be so low (strong peso) or are you referring to the market value going down for the next five years.

    Is there a good book/article or seminar that you can recommend regarding bond trading?

    Thanks so much.

    Comment by Warren | August 26, 2010 | Reply

    • if you bought it at par……….i doubt you would lose money unless another lehman bro sort of thing comes out …the worst case will be opportunity lost……….but at todays prices i believe 5% net is still not bad….for now

      Comment by MIKE | August 26, 2010 | Reply

    • i’m throwing out a guess here but it’s basically the same as mike. i think what gus means is that eventually the holder may want to sell the bonds before maturity to take advantage of better returns elsewhere. the problem may be that everyone else will want to do the same thing as interest rates rise and better yielding securities become available, reducing the demand and price for the bonds. it’s a relatively safe 5% yield and if that satisfies the investment goal and the owner can hold it to maturity they won’t lose money. at least this is the way i understand this rop bond issue.

      Comment by ed | August 26, 2010 | Reply

      • yes your very right 110%

        Comment by MIKE | August 28, 2010

  6. Hi Sir Gus, everybody, I’ve read about the much-awaited Cebu Pac’s IPO and I am wondering how can someone participate/buy shares during the IPO? Will it be similar to buying normal/currently listed stocks? Thanks 😀

    Comment by Dex | August 26, 2010 | Reply

    • dex,

      to my knowledge you have to know who are the selling agent. it may be a bank or a stockbroker, we retail investor can buy tru these agencies.its quite expensive 150 per share is the indicative price but good thing in buying tru ipo it has no commission charges and the like. the risk involved is when it is initially traded in the market we dont know how its price will adjust it is the investing public who will determine what is its real market price.

      this is just my limited knowledge on this matter hope somebody could add some more.

      Comment by richard | August 26, 2010 | Reply

      • 150? I thought it is 90 per share. Thanks for the info Jasper, it is greatly appreciated.

        Comment by Dex | August 26, 2010

      • Richard, thanks for the response sir. As a newbie, my understanding is that its always cheaper during IPO. At least now i know thats always the case. Thanks again. “Its Probably Overpriced” – I like that LOL

        Comment by Dex | August 26, 2010

    • The list of companies that tanked after an IPO is huge. MPI, FGEN, GMA7, etc.. etc.. Thats because the initial prices are already fully valued. Meaning the prices they set are the maximum they can get already. So more often than not, its all downhill from there. That’s as good as it gets (Notwithstanding the relatively minor number of issues that goes up after IPO)

      IPO in other words can also mean – Its Probably Overpriced.

      I’d stay away if I were you. Not unless you know something apart from the ordinary. There are lots of stocks out there that’s performing that there’s no need for a person to subject himself to such an unknown anyway.

      just my opinion.

      Comment by jasper | August 26, 2010 | Reply

  7. Condolence on the passing of our beloved Tito Cosio. We were together in the Board of Investments in the ’70s.

    Comment by anna gimenez | August 26, 2010 | Reply

  8. Hi Sir Gus! A friend of mine introduced me about first metro securities. I am so lucky that i came to read about your articles. I am an avid supporter of yours. Currently my portfolio includes: AEV, AP, DGTL, DMC, MPI, PNB and VLL. What do you suggest sir with the ones i have right now??? I wish that you could reply to my post sir Gus. God bless you!

    Comment by frederick | August 26, 2010 | Reply

  9. Ok, thanks Sir Gus for the insights.

    Comment by tessa | August 26, 2010 | Reply

  10. My condolences Mr. Cosio…

    Comment by Norman Go | August 26, 2010 | Reply

  11. My deepest condolences……sir

    Comment by MIKE | August 26, 2010 | Reply

  12. hi everyone. what’s the target price of SCC? I was able to buy some yesterday at 120.

    Comment by Shan | August 26, 2010 | Reply

  13. Sir Gus, my condolences…

    By the way what are your inputs as regards PX? looks like there’s a surge of buyers with this stocks. Appreciate your thoughts.

    God bless

    Comment by artinvesting | August 26, 2010 | Reply

  14. my condolences sir Gus.

    As for the incident, it only shows how desperate people are when it seems that they cant do anything in their situation thus resorting to violence and terror. I hope other investors wouldn’t shy away from the Philippines just because of this incident. I also hope that employers abroad wont brand our beloved OFW’s as brute people because one has gone out of control as seen in the news. Let us keep our faith in the Filipino people and we hope that such incident will never happen again because our government will truly be better at doing what is right and set aside politicizing.

    Comment by Louis | August 27, 2010 | Reply

  15. Guys whats happening to PNB????

    Comment by Cholo | August 27, 2010 | Reply

    • It wants you to buy him.

      Comment by George Mason | August 27, 2010 | Reply

      • what goes up must come down……..the more if the PAL woes are not resolve……..daming utang PAL sa PNB/Allied….pag walang cash flow e di DEFAULT……….

        Comment by MIKE | August 28, 2010

  16. DGTL is going down! 😦

    Comment by michael | August 27, 2010 | Reply

    • Hi Sir, guys,

      What are your thoughts on DGTL? I earlier thought that support was already at the 1.40 level and now its reaching far more to 1.38.. are you guys slowly unloading or just waiting it out for the rebound?

      Thanks

      Comment by PiggyBank | August 27, 2010 | Reply

      • Hi there PiggyBank, I also have some DGTL in my portfolio, my AEP is 1.44. I’m still holding. I’d actually buy more if I have more cash.

        Comment by KennyV | August 28, 2010

      • Hi, PiggyBank. Same as KennyV, I’m still holding my positions. My AEP for DGTL is at 1.43.

        Comment by Aika | August 28, 2010

      • same here..Il keep DGTL and accumulate more on dips.

        Comment by Dex | August 28, 2010

  17. Sir Gus What is the best thing to do now in DGTL sell it on next trading day to Cut some losses? also Sir about PNB sell na rin po ba mga co investor? Thank you…

    Comment by ronald | August 27, 2010 | Reply

    • just curious, how long have you had the DGTL? thanks..

      Comment by jasper | August 27, 2010 | Reply

  18. Jasper I bought DGTL last Aug.13 only, for 1.4300 and now is 1.3900 Sorry Iam a newbie here and nervous… Thanks.

    Comment by ronald | August 28, 2010 | Reply

  19. and DGTL now is 1.3800 sorry . sell na ba if bumaba pa dito?

    Comment by ronald | August 28, 2010 | Reply

    • Hi Ronald, the decline of most stocks yesterday was expected because of the long weekend ahead (higher uncertainty) and DOW that went further down by 0.70%. Last night, DOW gained 1.65%, and my take is that we just need a flat DOW this monday to lift our stocks in tuesday’s trading. I believed our excellent GDP numbers have not been factored in yet and will add further to a gradually improving market sentiment in the coming days. DOW, if i remember correctly, is green only once this week and that gain is merely 0.2%.
      Hence global market sentiment is quite low until last night.

      As for DGTL, my average was 1.40 and i`m far from being worried (its 15% of my current portfolio, i`m also holding MPI and AP). I noticed gradual accumulation of 3-4 institutional sponsors buying the stocks in the last few days, this development is usually constructive. In fact, it declined by merely 0.72% in the last trading day when stocks like MEg, MPI, PNB, etc went red by more than 2%. I`m fully invested now and very optimistic of better market sentiment in the coming days.

      Comment by Chris M. | August 28, 2010 | Reply

      • Swede investor cuts stake in Digitel

        A telecom firm based in Sweden has given up half of its stake in Digital Telecommunications Phils. Inc. (Digitel). In a disclosure to the Philippine Stock Exchange, the telecom unit of JG Summit Holdings said Telia-Sonera AB sold 263.01 million shares in Digitel for P474.61 million in the past 37 days through Macquarie Capital Securities Phils Inc. After the sale, TeliaSonera’s stake in Digitel went down from 8.59 percent as of June 24 this year to 4.28 percent or 271.96 million shares as of August 13. In 1995, TeliaSonera subscribed to 600 million shares of the Gokongwei-led telco, representing 9.44 percent at the purchase price of P905.87 million. TeliaSonera is the leading telecommunications company in the Nordic and Baltic region. It also holds a strong position in mobile communication in Eurasia, Turkey and Russia and offers services for the transmission and packaging of sound, images, data, information, transactions and entertainment. “Other than being a stockholder of Digitel, it has no relationship with the company,” Digitel said. At end-June, Digitel’s net income amounted to P145.4 million, a turnaround from last year’s net loss of P638 million. Its revenues rose 19.1 percent to P7.97 billion from last year’s P6.69 billion, driven mainly by the 30.6-percent growth in the wireless segment. Digitel attributed the improved revenues to the continued success of its unlimited service portfolio and increase in subscriber count. The wireline voice communication services, on the other hand, fell 12.5 percent to P1.49 billion from last year’s P1.71 billion mainly because of the decline in revenues from international and domestic tolls and local exchange.

        Comment by Foreign Investor | August 28, 2010

  20. Hi, tanong lang about Exportbank. I still have a little shares. What will happen to my stock if BDO will take over exportbank?

    Comment by Kit | August 28, 2010 | Reply

  21. Thanks for the reply Chris M. well appreciated..Hoping that the market will recover this coming tuesday..

    Comment by ronald | August 28, 2010 | Reply

  22. dont sell dgtl, if everyone would sell out early this could turn into a frenzy. keep and hold till next year. hoping it reaches 2.50 yipee.

    Comment by gerald | August 28, 2010 | Reply

  23. To Ronald:

    I think its better if you realign your expectations a little. I mean, don’t expect stocks to rise the next day you bought it. In fact, I have a theory on this.. The next day you buy a stock, expect it to go down.

    It would be better if you treat stocks like a business though. Like, if you fund a business you don’t expect that the next day you will recover your capital right? Owners don’t go and panic that first month/year of operation. They ‘know’ they’ll be in the red. But they know too that if the numbers are good, and they work hard and be patient eventually the profits will coming rolling in.

    And its like that with DGTL and stocks in general. I mean, if you know the numbers are good. The security is very undervalued, etc.. and If they manage to really turn things around, then the profits should hopefully come rolling-in.

    So I suggest you monitor DGTL through the quarterly reports. Give it maybe a year or two. If you like what you see, then buy a little more each time. If not, then dump it.

    Otherwise, if you are always dumping stocks on the sole basis that it went down a few points (never mind the fundamentals), you’ll find it very hard to make money. You’ll be like someone who started a sari-sari store for 10k and then dumped it the very next day because he couldn’t earn another 10k ‘agad’. Never mind that other people doesn’t even know a new store is there.. etc.. etc.

    Just my opinion. But look at me talking eh.. the guy who bought 100k of GLO. :/

    Comment by jasper | August 29, 2010 | Reply

    • Jasper at what price did you buy the GLO? I remember some 2 or 3 years ago, GLO also went down to this level, below P800 but it also went up to around 1,200 or something. GLO is basically a good company with excellent facilities and good management, not to mention the solid financial backing.

      PD: with DGTL, no GLO yet but intending to buy

      Comment by Nel | August 30, 2010 | Reply

      • I bought at an ave. of 920. Basically, I was attracted to GLO because of its high ROE and well, its Ayala. But that is one time where I broke my own rule regarding to investing. Basically, it didn’t pass the magic 22.5 barrier (PExPB <22.5) when I bought it at 920.

        Lesson learned.

        Comment by jrebong | August 30, 2010

  24. Sell your Digitel Buy PX….PX will make 2+ Billion PROFIT this year..if Gold rallies to 1500….Expect higher net income next year…..Dgtl will make only 300++ Million profit this year coz of election.Buy stocks thats starts to moves UP…

    Comment by Roy | August 30, 2010 | Reply

  25. Jasper thank you for your encouraging thoughts it helps me not to worry in this red market situation..You are a clever investor..hope u continue helping us here like our Guru Mr. Gus. thnks.

    Comment by ronald | August 30, 2010 | Reply


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