Gus Cosio says so

Ideas on the Philippine Stock Market

Our blundering officials!

11:30pm  Monday  30 August 2010

One good thing about being away from the market for a few days is that you are able to stand back and have a long hard look at what’s been happening.  I think the highlight last week was the hostage blunder which broadcasted to the whole world the incompetence of our law enforcement personnel, the ineptness of the local government of the city of Manila and the general lack of perspective of the national leadership.  It is not for me to belabor what those guys have done; but one thing is for sure, they bungled it up for the whole country.

What I can see down the road is a slowdown in tourism because let’s face it, tourists will not risk something like this happening to them.  My suggestion is for tour operators to stop bringing tourists to Manila and try to attract them to many other more interesting places.  In my opinion, Manila is a dump and so are the cities that surround it.  Places like Cebu, Bohol, Laoag, Puerto Princesa and Dumaguete, to name a few would provide better environment and ambiance.

Anyway, having been detached from the market for a few days, these are my thoughts.

1. The US market looks like it is not going to rally further after the recent round of earnings report because everybody is focusing on the economy.  The revised 2QGDP growth in the US only serves as a grim reminder that everything is slowing down again so there is no rush to buy stocks.

2. The threat to the global market is not as heavy as it is to the US economy.  In Europe, Germany continues to assume the role of growth engine and France, though not as strong, is not lagging far behind.  The Greek economy is only twice the size of the Philippines, so it will not create any tremendous impact.  China has managed to restrain any possible real estate bubble and is growing domestically.  India may be having to rein down inflation and could end up growing at a slower pace.  Southeast Asia with Indonesia, Thailand and the Philippines are on a sure growth path.

3. Unfortunately, the DJIA and the S&P 500 continue to be the bell weather for the global equity markets.

4. The Philippine market is at a crossroads where many portfolios are seeing huge profits which are very tempting to take.  With psychology slightly negative, it may not matter what the fundamentals are in the short run.  Psychology will prevail.

I would like to remind each and everyone who dabbles in the stock market that there will be ups and downs.  Sometimes the swings are narrow, but in critical times, they are wide.  That is why money management is very important, and I have always made a point that there should always be 10 to 20 percent cash available.  That means if you will put more cash into the market because you want to add a new stock in your position, you should either cut positions on weak stocks or top slice (take some profits) so that there is cash again in the portfolio.

There have been concerns expressed about DGTL.  I mentioned in the past that this is a recovery stock.  DGTL is a stock that has languished for 10 years and is only coming back now.  No wonder Telia of Scandinavia got fed up with the stock and has gotten out.  I do not know how big their position is, but no matter how large it is in local terms, it is something that they’ve made provisions for already.  They can absorb whatever loss they are taking.  The real question in my mind is whether or not the business of DGTL will continue to do better, and the recent trend in market share of the telecom industry tells me it will.

I am not going to convince people to hold on to this stock.  My suggestion is that if you cannot live with prices going down, sell it immediately.  No use losing sleep over it.  For those who have the holding power, I’d likely wait for it to come closer to 1.20 and perhaps double my position.  I see a company that is committed to building its business.  The other telcos (Bayantel, Extelcom, Liberty) have just stuck to their niches probably waiting to be bought by the bigger players.  DGTL poured new money to get to where they are now.  Tell me, does that sound like a company that is not seriously trying to be a serious big player?  PLDT makes over Php 40 billion a year and Globe in the neighborhood of Php 20 billion.  DGTL will likely make Php 300 million this year; do you think there is a chance that this could go up to Php 3 billion next year?  You tell me.

For the other stocks, perhaps we could discuss them as the week wears on.  In the meantime, I think that people should be reducing stock exposures and raising cash for the time being.  There might be rough sailing ahead.

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August 30, 2010 - Posted by | Uncategorized

21 Comments »

  1. Sir Gus,

    It is this line of reasoning and foresight you are having on Dgtl that brings about excellent stock market returns.

    Also, the logical question will be, with ARPU declining, will TEl and Glo continue to earn P40B and 20B or increase it year after year? The answer to this will tell a lot on the quality of management this companies have.

    Thanks

    Comment by alex | August 31, 2010 | Reply

    • Alex,
      The reason I am sticking to DGTL is that among the three players, it is the one which has the highest growth prospect. That’s all.

      Comment by Gus Cosio | August 31, 2010 | Reply

      • I strongly agree with Sir Gus on this one.

        Comment by Aika | August 31, 2010

      • All Fundamentalists will surely agree with this one. But Technicians(technically speaking) will disagree with this one for the moment

        Comment by Foreign Investor | August 31, 2010

  2. Hi Sir, I current have DMC, MEG, AGI, PNB, DGTL and MPI, which do you think should I sell to raise cash?
    Thanks!

    Comment by Cholo | August 31, 2010 | Reply

    • If it were my portfolio, I’d sell MEG and top slice on AGI and MPI.

      Comment by Gus Cosio | August 31, 2010 | Reply

      • Sir Gus, may I know reason why you do not like MEG, AGI and MPI. I ask this because I have MEG and MPI. AGI is being currently recommended by another respected guru. Thank you

        Comment by Nel | September 1, 2010

      • Nel,
        It is not that I do not like MEG, AGI or MPI. As a matter of fact, I like AGI and MPI. I am not too ecstatic about MEG at these prices. If you read my previous posts, there were periods that I strongly recommended MPI and AGI. I also mentioned that I considered MEG a purely trading stock.

        Comment by Gus Cosio | September 1, 2010

  3. Hi Gus,
    I’m a new reader and I just want to say thank you for the time and effort you’ve been giving to this blog. I’ve been reading for a month now and I find your insights to be very useful especially for newbies like me.

    The reason I commented is I want to know your views on my current stock holdings : AP, DMC, BPI, SMPH, EEI and MARC.

    Regards,

    Comment by B | August 31, 2010 | Reply

    • B,
      I think your holdings are okay. If you have profits on EEI, you can sell it so you can have cash to buy something else. I do not know what MARC is. I would not hold a stock that I have no information about. I would probably split BPI into some PNB.

      Comment by Gus Cosio | August 31, 2010 | Reply

      • Thanks for your time Gus.

        Comment by B | August 31, 2010

  4. Sir Gus,

    I would like to know your thoughts on FLI. Do you see it surging to 2.00 on year end?

    Comment by Neo | August 31, 2010 | Reply

  5. Hi Sir Gus,

    I would like to know your thoughts on FLI. Do you see it surging to 2.00 on year end?

    Comment by Neo | August 31, 2010 | Reply

  6. Hello sir Gus,
    It seems PX has finally awaken. i’m betting half of my small portfolio on this one (TP=21). i’m just a newbie, although following your advices here helps me a lot in making decisions. I also have DMC and DGTL with GEO as speculative stocks. haha!

    Comment by Ghie | August 31, 2010 | Reply

  7. Dear Sir Gus and fellow investors,

    May I know your thoughts on SMPH?

    Comment by Mal | August 31, 2010 | Reply

  8. Hi Sir Gus,

    Im a relatively new reader and find your blog very informative and critical. Most of your advices are right on! When do you think is the best time to buy back in? I’ve managed to sell all my positions except TEL a few weeks ago. Noticed that international markets (not just US) have been going down the past few weeks but our PSE has been going relatively strong. Do you think we are poised for a major correction?

    Thank you and more power!

    Comment by Jeg | September 1, 2010 | Reply

  9. hi gus!

    id like to know your position on JFC as of the moment..

    thanks!

    Comment by cliffhanger | September 1, 2010 | Reply

    • Cliff,
      I do not have a position in JFC. If you want to know my thoughts on JFC, I think it is a good stock and it is presently very expensive although this stock always trades expensive. This is the reason why it moves usually in surges.

      Comment by Gus Cosio | September 1, 2010 | Reply

      • thanks gus!

        looking at it technically, it is trending upwards, but looks like its up for correction..

        Comment by cliffhanger | September 1, 2010

  10. Hi Sir Gus,

    What is your take for RCBC(Yuchengco group). Today I read that they will try to increase their capital. If this will push thru, what would be its effect for the bank.

    Thanks in advance

    Comment by Cliff | September 2, 2010 | Reply

  11. Sir Gus,

    What do you think of SMC? Is it a good investment? Do you have any idea on its 2010F & 2011F EPS? Thanks sir!

    Comment by Steve | September 4, 2010 | Reply


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