Gus Cosio says so

Ideas on the Philippine Stock Market

It is still worth the risk

In my last article, I wrote that investors should be looking to raise cash because he U.S. economy was looking to fall into its second dip. There was also this negative sentiment around the country on account of the hostage fiasco that transpired on the 24th of August. For an investor, raising cash does not really mean that he is turning negative on the market. I, for one, have been a strong advocate of greater equity allocation in investors’ portfolio simply because the alternatives were not at all enticing. When asked by an investor early this week of how I was moving my portfolio, I said that I was selling some stocks and buying others because I did not want to be 100% allocated in equities. I want to have close to 20% cash on hand; so if I took on a new position, I would re-balance my portfolio by selling some slow or under performers as well as top-slicing for profits in stocks that have done very well.

It has been very difficult to make short-term judgments in my portfolio because many local investors’ sentiments become jaded by what is going on in Wall Street. For most of August, the Dow was declining, yet the PSEi was steadily rising. Foreign buying into our market was intermittent slipping from net buyers to net sellers from week to week. Nevertheless, there were always traces of foreign brokers ready to pounce on any weakness in prices. That was in fact what happened when the hostage fiasco at the Quirino Grand took place. The market drifted lower only to be met by aggressive buying among foreign and local institutions. If there is anything that we can glean from price actions of the last few days, it is that pent up demand for Philippine stocks is starting to surface quite strongly. This demand is most evident in the growth of value turnover over the past 5 weeks. In the first week of August, value turn-over was averaging Php 3.2 billion a day. This steadily rose to Php 3.7 billion a day average in the second week, then to Php 4.2 billion. In the week immediately past, it was already averaging Php 5 billion a day.

Undoubtedly, the amount of money flowing into the market is growing. Ironically, this comes at a time when global investors feel quite uneasy about the developed markets. While there has been a recovery in Wall Street this past week, there appears to be no definite conviction that the economy will do better. There appears to be no conviction that stocks in the U.S. will continue to rally, after all the year-to-date performance of both the Dow and the S&P 500 have been flat to negative.

Where does this leave local stock prices? Well, I think they will continue to move higher. Of course, people cannot ignore the individual stock selection. People have been asking about the banks due to the recent publicity on Globe Asiatique, a property company that has applied for listing in the PSE. The scuttlebutt is that there are some bad loans coming out of the misfortune of this property company. To be safe, I would avoid RCB and PNB for the time being. The news I am getting is that PNB has a manageable exposure while RCB’s potential problem is around 4 times that of PNB’s. I think people should watch these stocks closely to see what happens. Personally, I believe PNB will weather this one quite easily and with the forthcoming merger with Allied, I see very little erosion in the ultimate merged value of PNB.

As to stocks that I think will continue to perform, at the top of my list would still be AP and DMC. I missed the strength in AC and BPI. These stocks, together with MBT are very much preferred by foreign funds. I think that all the blue chip stocks will be doing well over the remaining months of 2010. I think it is worth mentioning that TEL will always be part of any foreign portfolio seeking an exposure in the Philippines. Actually, my strategy with TEL is to have an equal weight of TEL and DGTL in my portfolio. TEL has the steady and huge core earnings which is expected to go to Php 45 billion in 2011. DGTL, I expect core earnings to at least double in 2011.

For property stocks, I quite agree with those who have been punting on FLI. the stock was a favorite until Typhoon Ondoy struck. The stock, I feel, has undergone a re-evaluation and people are now more confident that things are back on track. I am also taking a look at the fundamentals of SLI because of the recent price movements in the stock as well as volume spikes. SLI is a good real estate developer that have had a number of successes. There might be money making opportunities here.

There have also been some interest in mining share led by a recent rise in PX and a stronger move on AT. I think that that there may be trading opportunities in both stocks since hard commodities have started to pick up again in the world market and both these mines are producing. incidentally, I hear that ORE is already producing and should be making shipments soon.

Finally, I think the exchange of ideas going on in the comment section of this blog is very constructive. I encourage a lively exchange of ideas among readers. My only request is that we keep the standard of the comments on a professional level, meaning, let us share insights rather than just hype. Let us also use language worthy of respect for our readers.

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September 5, 2010 - Posted by | Financial markets in Asia

59 Comments »

  1. Well said Sir Gus. As an online investor/trader OFW who have a limited information on the PSE-listed companies, your blogs really serve as our best guide on our stock picks and investing strategy. So far, we have outperformed our equity MF. Though we have mistakenly overinvested on EDC (31%), it has become a blessing in disguise to us… 🙂
    I really appreciate all your insights. I’m also trying to educate my colleagues here to start investing in PSE. I think even 5% of us would have a significant impact in our market…
    Thank you and more power! We hope you won’t get tired on consistently giving your insights to us, the investing public! 🙂

    Comment by Hameee | September 6, 2010 | Reply

    • Hameee,
      I appreciate your encouragement. Indeed, I hope people learn to do proper investing through this blog. Please remember to always look into any company you choose to trade so as to always be on the safe side. Remember investing is making diligent analysis of the risk being taken.

      Comment by Gus Cosio | September 6, 2010 | Reply

      • stock investing shouldn’t be that hard if we have mentors like Sir Gus. In a way the exchanges of ideas and personal opinion regarding a stock helps us analyze it whether fundamentally or technically.

        Comment by Louis | September 6, 2010

  2. Sir,

    What do you think of the blue-chip SMC? It was not moving when there was SMC-A & SMC-B, … but now since it has declassified, there is more life to it.

    Would you know the fundamentals of this stock?

    Thank you,
    Steve

    Comment by Steve | September 6, 2010 | Reply

    • Steve,
      Personally, while I still hold the SMC shares I have owned for over 30 years, I have stopped following the company because it has become a different San Miguel. The beer business has been spun off into SMB. They have taken on a lot of debt to get into the power business. they now control Petron. I do not understand the company, so I have avoided making more commitments to the stock. If you like a conglomerate story with what looks like a future SMC, you can find that now in AEV.

      Comment by Gus Cosio | September 6, 2010 | Reply

  3. Hi Sir Gus,

    Regarding PNB, were you implying that at its current price level, we shouldn’t buy it? How about if we already have shares in PNB, should we sell it now to lock in our profits and buy later when its price goes down? Also, when is the scheduled merger of PNB and Allied? Thanks in advance!

    Comment by Sonn | September 6, 2010 | Reply

    • Sonn,
      I do not know exactly when the merger will happen, I am just convinced that it will. My strategy is to hold on to my PNB because my cost is extremely cheap, so I can afford to wait until it hits 50 or so. If you have the shares, I do not hink that it will drop. I just think that any up move from here will already be slow.

      Comment by Gus Cosio | September 6, 2010 | Reply

  4. Hi sir,

    With all the worries about the double dip, it seems that our local market doesn’t care anymore with what could happen. I for one, am still cautios but when investor confidence is so high, how would you advise us to proceed for this week? I am thinking on taking profits from AGI DMC and MPI but i am thinking whether or not i am selling prematurely or just in the nick of time?

    Thanks

    Comment by James | September 6, 2010 | Reply

    • followup question na rin about the double dip sir gus….

      if or when the correction arrives, do u think it will have a significant impact on the PSE? will prices go down a considerable amount that could cause another panic in the market?

      Comment by cliffhanger | September 6, 2010 | Reply

    • James,
      The question to ask your self is whether you are still bullish or not. If you’re not, then slowly wind down your positions. But if you’re still bullish, then ask yourself which stock you would like to buy at this point. If it includes these stocks, then keep them. If you think others will do better, then replace whatever you sell with what you think might perform better.

      Comment by Gus Cosio | September 6, 2010 | Reply

  5. Sir Gus,
    The readers should be aware of the risk of following one’s recommendation including those who comment on your blog.

    You can include a disclaimer in your website.

    Comment by alexis | September 6, 2010 | Reply

    • with regards to disclaimer, I think there is no need. For one thing, this is a ‘blog’.. Blogs by its very nature is intended for brain dumps of the author.. Its one of those things that goes without saying..

      Comment by jasper | September 6, 2010 | Reply

      • well put!=)

        Comment by Raymond Sison | September 6, 2010

      • agree!

        Comment by Cholo | September 7, 2010

    • This.

      Comment by KennyV | September 7, 2010 | Reply

  6. Sir,
    Thanks for the insights today. Im now only 45% invested. Have trimmed down PNB from 50% to only 26% of portfolio. Other stocks that I have are AP 12% and DMC 7%. Im bullish and my plan is to re-enter with MPI, DMC, AP and DGTL. In your opinion, how would you proritize re-entry at current price levels and what would be a good mix in % holdings. At current index level, are you still comfortable in entering in these stocks? regards

    Comment by mark | September 6, 2010 | Reply

  7. Again than you very much on your ideas Sir Gus. I n regards to PX my friends and I in http://www.kerygmafamily.com/forum have been discussing this stock for sometime. The entrance of MVP in PX has given a boost not only on its market price but in its operations as well. The latest is the new group led by MVP has acquired a stake at the Tampakan mine. What do you think will be the direction of of PX? We are looking at the target price of 21 for PX by next year.

    Comment by Louis | September 6, 2010 | Reply

  8. Hi sir,

    This was just in bloomberg: “massive” bull run for philippine stocks. It may even reach 3900. Do you think this is an overestimate? For me, if the trend today continues, im sure it would break 4000. 🙂

    Comment by James | September 6, 2010 | Reply

  9. Hi Sir Gus,

    A bank is offering me a personal loan of 1.22% interest for 24 months. That’s 29.28% interest rate for 2 years. Do you think availing this loan and investing it on FAMI’s equity or balanced fund is a good idea?

    Comment by Jeff | September 6, 2010 | Reply

    • Jeff,
      I do not think it is a good idea to borrow money to put in a fund. You’ll end up working for the bank. Better just put in whatever disposable savings you have and discipline yourself for the 1000 pesos a month regular investing as if it were an amortization of the loan. That way, you don’t have to pay interest.

      Comment by Gus Cosio | September 7, 2010 | Reply

  10. Hi Sir,

    would like to ask you which of the property stocks is a good bet right now? am looking at sli and fli which one would you recommend? as for the projects i think sli has far more several projects than fli.

    Comment by son | September 6, 2010 | Reply

    • Son, I recently bought SLI because this dormant stock all of a sudden perked up. Looking deeply at the company, I saw that they have a very good land bank and a good pipeline of projects. I am taking a 6 month view that the stock will go up by at least 30%. Downside is that it goes below 1.60.

      Comment by Gus Cosio | September 7, 2010 | Reply

  11. Hi sir Gus,

    Would you think the case of Globe asiatech and its investigation will drag down the property stocks. How much is the impact would be. I noticed their decline today and I am attributing the cause to Globe asiatech.

    Comment by Cliff | September 6, 2010 | Reply

    • I think Globe Asiatique won’t go through. BDO, the underwriter dropped it. everything is academic. It won’t hurt the others.

      Comment by Gus Cosio | September 7, 2010 | Reply

  12. Im selling ALL my Fgen and EDc tomorrow and waiting to buy MPI @3.10- 3.20 this week….Sold all my property stocks last week i think property stock overbought for the past 2 months….

    Comment by jenny | September 6, 2010 | Reply

    • I have EDC too but will not sell. At current prices, its still a good stock imho. Maybe at 5.5.

      As for MPI going down to 3.10 – low probability to happen I think. Two weeks ago when it had a correction the lowest it got down to was 3.26. And that was from a high price of 3.4x. (Now its at 2.55). But if it does go down to 3.10, then I’ll probably sell some of my holdings and buy me some more stock of this excellent company.

      For property stocks, it might be overbought but the property sector itself is on the upswing. All the major property companies are reporting significant income that I think by next year, if this continues, holders of property stocks will be very happy.

      Comment by jasper | September 7, 2010 | Reply

    • Is there any reason why some of us are letting go of property stocks?

      Comment by BornOnChristmas | September 7, 2010 | Reply

  13. Hey Sir Gus

    My bank is offering me a personal loan with an interest rate of 1.22%/month for 24 months. That’s 29.28% in 2 years. Do you think availing the said loan and investing it in FAMI’s equity or balanced fund is a good idea? Hope you can help me on this one sir, thank you very much!

    Comment by Ronald | September 7, 2010 | Reply

    • @Ronald, I computed the effective interest rate for this type of loan and I came up with 25.98% per annum. It is never a guarantee that FAMI will maintain its current earning rate. If you think that you are willing to take the risk for any rate difference, then go. Otherwise, better stay on the safe side and invest only what you have saved.

      Comment by deuts | September 7, 2010 | Reply

      • 29.28% is quite high especially for a balanced fund. I recently ended my fund with Sunlife because my net for 3 years was only around 3.5%. I also took out a loan @8.5% net per annum and placed them in stocks. I was already able to pay the interest in just 2.5 months so I would now have around 10 mos for profit if all goes well. Sir said that taking out a loan for investments is not bad and its also a kind of “forced” savings. If you would still like to continue, I would suggest placing them in stocks that have good fundamentals. Avoid buying “basura” stocks although this might have a chance of striking gold but since youre in a definite time frame (2 years), being safe would be my best bet. Try DMC PNB MPI and JGS. Thats where I would place mine.

        Term prices for these are: DMC@30, PNB@56.50, MPI@6.50 and JGS@30.

        Comment by PiggyBank | September 7, 2010

  14. Sir Gus,
    Thank you so much for opening my mind on the different opportunities in investing as well as showing bright prospects in Philippine economy through your lecture yesterday at U.P. National Institute of Physics. Thanks to Chris Monterola for spearheading and preparing for the event.

    I just have a question related to the recent agreement on the operation and management of MNTC of the SCTEX, what will be its effect on MPI’s performance?

    Comment by boyzone | September 7, 2010 | Reply

  15. Hi guys,

    What are your thoughts on the cebu pac IPO and its relation to JGS? If the IPO goes sour due to its high price, would you think it would greatly affect the JGS stock? Ive had recommendations to acquire JGS but im just worried if the IPO would just not attract that much attention…

    Thanks

    Comment by Janeen | September 7, 2010 | Reply

  16. Regarding property, I for one is very happy with VLL. It has broken 3p now.

    I almost didn’t buy it. I wanted to buy at 1.9 but changed my mind and watched it climb to 2.4. I bought in the end at 2.48. It was a hard decision to make because it has risen so fast. But since I think it was still undervalued I bought anyway. Good thing I did too 🙂

    Bad news is – RLC is one I wanted to buy at 14p. Just didn’t have the guts to sell SHNG and invest there instead.. hehe.. whose sorry now huh 😦

    Comment by jasper | September 7, 2010 | Reply

    • sir gus,

      according to citisec, these are the respective target prices for the following in the property sec,

      ALI – 19
      FLI – 1.54
      MEG – 2.45
      RLC – 17.25
      SMPH – 12.25

      what is your favorite among them?

      Comment by cliffhanger | September 7, 2010 | Reply

  17. Hi Sir,

    What do you think about options? I asked my broker but he told me that most of the companies here only buy and sell listed securities. Are there any offering this type of service?

    Thanks 🙂

    Comment by Ardy | September 7, 2010 | Reply

  18. sir gus,

    nihao (NI) is now a company with an affiliate (ORVI) that has started commencing with shipments.

    how long do you think it will be before this development in its fundamentals starts to affect its share price?

    Comment by jbtapang | September 7, 2010 | Reply

  19. Hi Gus,

    Thanks for all your insights, as a newbie, would like to ask for your help. In your practice on what % of profit do you consider selling or reinvesting your stocks?
    Because I’ve been earning but don’t know if I have to reinvest it, get it or just leave it, I only have 5 stocks that I’m happy with – MPI, DGTL, PX, AP and SMDC. Hope for your opinion.

    Comment by James | September 7, 2010 | Reply

  20. Sir Gus,

    I saw your comment re: SLI. They have a viable business model by selling DEVELOPED LOTS. This is not capital intensive as you do not need capital for construction activities. Some top developers envy their business plan.

    Which do you prefer, DMC or SCC? The insiders (directors) are currently buying SCC (one even bought at 134, 127, etc)as well as DMC. These companies really perform well (or they have inside information) when they buy their stock. I have followed their insider purchases for the past 2 years. My only plus for DMC is the additional value of Maynilad once it will have its IPO maybe 5 years from now.

    I have some cash to spare after 25% return from RCBC for 2 months which I am very happy. I am looking at SLI or VLL, DMC, SECB or SCC after the prices correct (and careful research) which I am expecting next week.

    Thanks a lot for all your insights.

    Comment by alexis | September 7, 2010 | Reply

  21. Hi Sir Gus,

    Where did you get the news of Oriental Peninsula’s possible shipment this November? And what do you usually use when researching a company’s fundamentals

    Comment by Joshua | September 7, 2010 | Reply

  22. and the winner is?

    http://online.wsj.com/article/BT-CO-20100907-711689.html

    news about European bank concerns affecting the investor market..

    i wonder what will really serve as the correction..

    Comment by cliffhanger | September 8, 2010 | Reply

  23. PNB hitting @50 this week? time to sell?

    Comment by kit | September 8, 2010 | Reply

  24. What on earth is going on with PNB

    Comment by Pinoy Na Bigbrother | September 8, 2010 | Reply

  25. wow! grabe jump ng PNB… Gus might be smiling right now 🙂

    Comment by jasper | September 8, 2010 | Reply

    • me too! 🙂 Thanks for your wonderful investment advices sir Gus

      Comment by Sonn | September 8, 2010 | Reply

      • MBT touched 70 yesterday and PNB around 48 today! Thanks Sir Gus! You are the best!

        Comment by Anthony | September 8, 2010

      • Thank you too Sir Gus! 😀

        Comment by KennyV | September 8, 2010

  26. hi sir gus,

    what is your analysis on the situation today?

    even when DJIA is down 1%, our phisix still manages to be up..even with rumors of a correction soon..

    whats going on? are we becoming immune to such bad news? or have we finally broken free from foreign indices being our determinant?

    Comment by cliffhanger | September 8, 2010 | Reply

  27. Hey guys/sir gus, does anyone know the reason for the surge in PNB’s price today? I just find it odd since the news on GA is out. Do you think it will eventually correct or will it go all the way to 50?

    Didnt cash in my shares today, still hoping it would rech 50 sooN!

    Thanks!

    Comment by Cholo | September 8, 2010 | Reply

    • me too!

      Comment by Janeen | September 8, 2010 | Reply

      • Hi guys,

        I was thinking of moving from PNB at 50 to MPI and FLI. What do you guys think? PNB has already given me so much so i guess its now time to move on?

        Comment by Tinee | September 8, 2010

    • Hi,

      If I took profits from PNB, wheres the best place to park it? 🙂

      Comment by Carlo | September 8, 2010 | Reply

  28. Hope it reaches 50 tom!

    Comment by Benjie | September 8, 2010 | Reply

    • Is it already safe to sell at 50? I remember it being valued at around 65 (very optimistic)

      Comment by Jude | September 8, 2010 | Reply

  29. Wow! PSE is 3800 and its still Sept! Looks like we’re definitely going to hit the 4000 level by end of the year. Looks like Christmas is going to be great for everyone here ;-D As for People with PNB like me, my opinion is to hold on to this stock till the merger. There’s no date yet for the merger tho look at the price! It might hit 50 this week! How much more when the merger comes =D It might be tempting to taking in profits but POP = Prolong Our Profits =)I’m hoping for a correction on PSE tho so I can go 100% in stocks =) Guys, what you think would be a good stock to pick with around 15-20% upside in like the coming 2-3 months? Good luck tom guys!

    Comment by raymund | September 8, 2010 | Reply

    • I just increased my holdings on MPI, DMC & FLI. Wait for a correction tho coz they are quite on the high note this week 🙂 Also take a look at JGS in line with cebbu pac’s IPO on november if all goes well..

      Comment by Mika | September 9, 2010 | Reply

      • nice picks mika! thanks for the tip! may i ask whats a good entry price and target price for MPI and FLI? I sold my DMC last friday at 23 =S it saddens me that its now 25-26 =( oh well..time to move on make another play =)

        Comment by raymund | September 9, 2010


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