Gus Cosio says so

Ideas on the Philippine Stock Market

Mile-high, Smile high

3:50pm Thursday 16 September 2010 Philippine stock Exchange Index 4005.46

Coincidentally, an altitude of 4000 feet is roughly equivalent to being a mile high. Again, we have a market that does not want to come down. In yesterday’s trades, there was a bit of profit taking in mid-session trade even as stock prices traded very strongly in early session. Today, we see the same pattern of consolidation going on. The way I see it, many of those who are underweighted in stocks are rebalancing their portfolios where gains are being banked into cash in anticipation of any further correction. I refer to both local and foreign portfolios.

Nevertheless, you see a very cheap stock leading the day’s advance, which is TEL. After lagging the market for a few months, TEL’s true value has become very compelling. In this Bull Run, investors look to be willing to buy other stocks at PE’s around 15X on the average. TEL is trading at a comfortable multiple of 11.5X so it has become a no-brainer for the savvy investor. Technically, TEL has just broken out of its 4-month resistance of 2500 and is poised to challenge its 6-month resistance level of 2550. If it breaks 2550, we will likely see the stock at 2800 which is only 12.8X 2010 earnings.

What I find encouraging in the market is that there continue to be a lot of skeptics. For example, when the PSEi broke its previous high, all of a sudden people started to talk about taking profits and become defensive in their portfolios. The only logic that is offered is that it has not been this high before and that this might be just another bubble. What I like about skeptics is the support that they keep bottled up within their portfolios because when the market dips, they become the heavier buyers.

Furthermore, I cannot see a bubble in this run up in stock prices because returns going forward from the operating results of listed stocks are not at all exorbitant. The estimates of earnings and cash-flows as well as net asset values are not close to the preposterous levels seen in 1997 and 1998 when a real bubble in the real estate market burst.

Apart from TEL, I think DGTL is on the same price run-up path. I believe that DGTL’s run will be earnings driven because they still have a huge wire-line network where broadband can expand in areas which are covered by neither Globe nor PLDT.

I think these stocks are consolidating but would be poised for further appreciation: AEV, AC, ALI, AP, BPI, DMC, EDC, FLI, JGS, MPI, RLC, SMPH and URC. After some price adjustments, I believe we are in for another surge. In the meantime, I continue to think that rotation into mining and some third liner stocks might dominate trading. Keep an eye on AT, PX and ORE because these stock will likely suck in buyers. Be careful, however, of being a sucker for garbage or “basura” stocks because they might get your cash stuck at a time the better stocks start to move.

Advertisements

September 16, 2010 - Posted by | Financial markets in Asia

63 Comments »

  1. Sir Gus, which do you think is better medium term.. FLI or VLL?

    Comment by Cholo | September 16, 2010 | Reply

    • Cholo,
      My money is on VLL.

      Comment by Gus Cosio | September 17, 2010 | Reply

      • Hello Sir Gus, What would be your TP for FLI?, Ive read that your TP for VLL is 5 within 6 months.
        FLI has been badly beaten this week.

        Thank you

        Comment by Foreign Investor | September 17, 2010

  2. If only we had more money then I would have bought all these goodies.

    Regarding DGTL, perhaps its time for me to sell some of my holdings and plow more into this one.

    Comment by jasper | September 16, 2010 | Reply

  3. Yes we have anticipated a correction a week ago but it never came and we ended up holding onto our cash and was not able to really take advantage of the bull run.

    Would the stock market go higher above this level or would this turn into the normal level of the stock market? If so we might as well start buying so that the next uptrend will be a benefit to us.

    Comment by Louis | September 16, 2010 | Reply

  4. Hello Gus,

    What do you think is the target price for JGS? Also do you think with the upcoming IPO of Cebu Pacific, this will most likely push JGS up, correct? There was a sell down today and closed at 21. That price is very tempting. Thanks for the insights!

    Comment by Gordon Gekko | September 16, 2010 | Reply

    • Gordon,
      I think there is some juice left in JGS. I don’t know how far it can go, but the market is bullish and there seems to be wider acceptance for higher PEs. I also think that Cebu Pacific, handled properly by underwriters, could fly (pardon the pun).

      Comment by Gus Cosio | September 17, 2010 | Reply

      • Hi Mr. Cosio. Again, thank you for spending some time to entertain questions from newbies like me.

        Can you please expound on what you mean by “handled properly by underwriters?” Does this have to do something about the price that they will use to sell CEB?

        Based on a research report i read, if CEB’s price will be P150 per share, it will be trading at 17.4X Price to Earnings Ratio, a substantial premium to the regional average at 11.37X. Do you think this is reasonable, especially for young commercial airline like CEB?

        (It will be the highest among regional peers, with the closest competitor, Tiger Airways at 16X PER)

        Any insights would greatly help. Thanks sir Gus! 🙂

        Comment by BJ Evangelista | September 17, 2010

    • In my opinion it will push the value of JGS.
      Cebu Pacific’s book value in my “guestimate” is between 10-12 per share.

      The initial IPO price (way back last Mar 2010?) was Php 95.00/share, outstanding share is 728M. So at 95/share CebuPac will become what, a 70-billion company. From what I heard, the IPO price is up to 115.00/share; which would make CebuPac an 83-billion company.

      I believe either 70B or 83B is not the value being used by JGS in their books =)

      This is my opinion… I could be wrong =)

      Comment by Raymond | September 18, 2010 | Reply

      • I agree with Raymond,
        I think JGS will continue its climb. The could be some minor corrections though. Buy on weakness is my battle cry.

        Comment by Gus Cosio | September 20, 2010

  5. Hi sir,

    A friend of mine told me to go with ORE due to its shipment and the resumption of mining ops next year. Their reports told me that they value it at 8. What do you think? Is this too much optimism or do you see this as a really possible outcome? I am not concerned with liquidity because my investment horizon is around a year per stock..

    Thanks!

    Comment by Janeen | September 16, 2010 | Reply

    • Janeen,
      I’ve had an analyst focus on ORE and she tells me that they should be shipping by Novemebr.

      Comment by Gus Cosio | September 20, 2010 | Reply

  6. Hi Sir Gus.

    Thank you very much for your valuable inputs. I continue to follow your blogs because it also gives me a brief insight on the markets today.

    Just like you did, I sold my PNB today with 25% profit and top-sliced my MPI. 🙂

    But on this period, however, since I am already on a different country, it would be difficult for me to monitor my stocks on a day-to-day basis. With this I am planning to invest in the long term. That is, invest one time and leave it until my money grow over the years. If you would be investing on two stocks, what would it be? Is JFC and BPI good for the long term? Thank you very much.

    Comment by Tubski | September 16, 2010 | Reply

    • Tubski,
      I mentioned earlier that I would go for TEL and DMC for very long term. Have a look at my reply to Jolly.

      Comment by Gus Cosio | September 17, 2010 | Reply

    • sayang nabenta na ung MPI mo. I’m of the opinion that MPI could be a good long-term investment. Noynoy’s priority is infra, and MPI(Along with DMC) is quite a good infra-related company. Add to that, MPI is the owner of meralco and maynilad. These two won’t go bankrupt anytime soon. So I really think it has potential.

      Comment by jasper | September 17, 2010 | Reply

  7. I think its time to buy I-remit,Food or tuna,IP and SPH if it consolidate @ 2.6+ or lower…..avoid Energy Stocks like AP its overbought…..Think twice before you buy….

    Comment by brad | September 16, 2010 | Reply

    • Brad,
      that’s not a bad idea. Just remember to get out when liquidity in these stocks go up because when they peak, liquidity starts to suck.

      Comment by Gus Cosio | September 17, 2010 | Reply

  8. Sir Gus, with the current prices, which stock do you think I can hold for long term?

    ThANKS

    Comment by jolly | September 16, 2010 | Reply

    • Hi jolly,
      Me, I like TEL and DMC for long term which means I have no time table for these two stock. I’ll just keep them. For a 6 month view, I like DGTL, SLI and VLL. For a 3 month view, I’ll go for ORE, PX and possibly AT.

      Comment by Gus Cosio | September 17, 2010 | Reply

      • SLI is too expensive at its current price… Even if it did reach a forecasted earnings of about P100M, it still has a P/E of around 225… Assuming that they continue their winning streak of doubling their earnings each year for the next 5 years, then maybe it is a good price right now, only if you’re considering to hold it for that long… Its highly speculative to expect its price to go higher…
        Sometimes people forget how much their paying for a business, even if they’re good…

        Comment by Rudy | September 17, 2010

      • Hi Sir Gus, Thank you for your responses to all my queries. What do you think is the fair value of SLI and ORE? Also, is it advisable to buy a stock every month for the next 15 years? I am planning to buy few board lots of DGTL or DMC regardless of price for my baby’s college education. Which one do you think would perform better in the next 15 years DGTL or DMC? Thank you

        Comment by lai | September 17, 2010

      • Yes, I was thinking about that too. I know that using the stock market as a place to save up for things like college is quite risky but if the time I would need it would still be lets say 10 years, maybe it won’t be such a bad idea? I was also looking at DGTL coz its relatively young compared to GLO and theres still gonna be lots of improvements along the way. What do you think sir?

        Comment by Ria | September 18, 2010

    • If it were I, they would be TEL, DMC, MPI and SMDC.

      Comment by Gus Cosio | September 20, 2010 | Reply

  9. Hi Gus, I have one time placements in mutual funds that have at last gained in the past month after no earnings for two years. When is it a good time to take profit and reallocate investments? What percentages do you suggest I reallocate to.. present allocation is 45% equity, l8% bond, 37% balanced fund. How do I transfer to FAMI? I am outside Manila where FAMI has no office.

    On stocks, how long does a correction last? Should I buy at now levels which are quite high or wait for prices to dip when correction occurs?

    We have all learned a lot from your insights.. the interaction from others helps too but at the end of the day, we wait for your comment on the issues raised. We hope you have time to reply to queries so that we can be guided on what action to take next on specific stocks. Thank you.

    Comment by Newbie | September 17, 2010 | Reply

    • Newbie,
      Can you go to the mutual fund link on this site. Then send them an email query on this. They will surely reply.

      Comment by Gus Cosio | September 17, 2010 | Reply

      • I emailed FAMI before but unfortunately they did not reply.:(

        Comment by rYan | September 17, 2010

      • hi newbie…. you may visit a Metrobank nearest your area and you can inquire FAMI from there…

        Comment by tatels | September 20, 2010

    • Regarding FAMI,
      I’m actually based in Cebu and I have a FAMI account as well. Basically, you contact their office through phone and they give you options. You can either fax, e-mail, or even courier your documents to them and everything is very convenient esp if you have a metrobankdirect account. Everything can be done online. I hope this helps. I enrolled in FAMI probably 4 or 5 months ago. No regrets 😀

      Norman

      Comment by Norman Go | September 17, 2010 | Reply

  10. Hi Sir Gus,

    I’m taking your advice and investing in stocks. Since i’m a newbie, with little starting capital, where do you think I could start? Also, when would be the right time to enter the market? Should I wait for a dip, or buy now before prices go even higher?

    Thank you.

    Comment by C | September 17, 2010 | Reply

    • C,
      Anytime is alright in entering the market as long as you buy a properly valued stock. If you want to start first thing Monday, perhaps you could pick up some VLL and hold it until the end of the year. You could also buy some DGTL and see if goes to 2 then take profits after 2 or 3 months. Alternatively, you could buy TEL, MPI or DMC and decide to sell when the market turns bearish.

      Comment by Gus Cosio | September 17, 2010 | Reply

      • Thanks Sir Gus! I will take your advice. I wonder, though, what the behavior of the market is during holiday season. Is the market good during Christmas time or is it unstable? What should we look out for in the next 2 to 3 month?

        Comment by C | September 19, 2010

      • C,

        The fourth quarter is the most bullish of all. Normally, it is the heaviest window dressing because it is the end of the year, end of quarter and end of month. However, since our market has gone up so much already, there might be little need for window dressing. In any case, I still believe that the market will be much higher in December than it is now.

        Comment by richard | September 20, 2010

  11. I do have garbage stock EIBB – export bank 🙂

    Comment by kity | September 17, 2010 | Reply

  12. Sir Gus,
    Thank you so much for the bright insights. What will be our prospects for MEG and VLL in the short run?

    Comment by boyzone | September 17, 2010 | Reply

    • Boyzone,
      I think VLL has better valuation than MEG.

      Comment by Gus Cosio | September 20, 2010 | Reply

  13. Hi Sir Gus! I just took profits on EDC today and I’d like to use the proceeds on VLL, SLI, or MPI. How would you rank these 3 stocks? Thanks!

    Comment by Sonn | September 17, 2010 | Reply

  14. AGI @ 8.50 as of this writing! I love your blog sir Gus!

    Comment by Sonn | September 17, 2010 | Reply

    • Sir Gus! Followed your advice before and got AGI around the 6++ level. Thank you so much!

      Do you think its still ok to average up on these levels or focus on other profitable stocks? It seems as if AGI might exceed its long term target of 10!

      Comment by cholo | September 17, 2010 | Reply

  15. Sir good day,

    Any comments regarding ISM, is there also a short term play if the company change its PAR value? or it only happens during SRO,

    always been your avid reader

    thank you and thanks also who share their opinion here..

    Comment by novice investor | September 17, 2010 | Reply

  16. Hi sir,

    One of our brokers said to hold off first from buying property stocks because it is waaay overbought. What do you think? It is said that there would be a major correction. Well on my side, if it would just be a little (i dont know what major means to brokers) then id just hold it coz i know it would eventually level off? My horizon is long term so maybe this is just a chance for a quick buck on the side but im still hesitant on this.

    Thanks!

    Comment by Noel | September 17, 2010 | Reply

    • To categorically label an entire sphere of stock as ‘óverbought’ seems to be a little extreme. I don’t know what overbought means practically though. Why does it matter if everyone bought at the same time? Perhaps the others all did the same research and reached the same conclusion?

      But no matter – All I know is, if you can get something good as cheap as possible, then good things will happen. And VLL is still cheap at this level. It was below book value the last time I checked and there have been no bad news to indicate its earnings will go down the drain.

      Tip: Stock prices, on the long run tends to follow two things – book value and earnings.

      And the last thing – no one knows the future. People want to say there would be a ‘definite’ correction, or that stock prices will rise ‘soon’. But if they really knew, they wouldn’t be stuck in a 9-5 job. They would be in a yacht somewhere sipping fruit juices with those little umbrellas.

      I think you should take any advice regarding the future, particularly if comes ‘definite’, ‘without fail’, ‘really’.. with a large grain of salt.

      Comment by jasper | September 17, 2010 | Reply

      • Exactly what I thought too! I was pretty much contented with the prices I got today then a person who had more experience in me in trading (let’s just say that trading is his profession and is already part of management high-up-there kind of type) told us that don’t buy property yet. Wait for the major dip. Well I would have considered a dip coz I was expecting it too somehow but a major one? That made me look the other way.. What just alarmed me was he was already a big boss..
        Anyway, thanks for the thought jasper! Really makes sense. 🙂

        Comment by Noel | September 17, 2010

      • Well said Jasper!
        I’m just one year old in stock market trading. Everyday I check the news and for all those who were forcasting the market in general statements, I can only say – no one really knows. Except for a particular stock where one has studied a lot and has key informations that affects price movements.

        Comment by Aldrien | September 18, 2010

    • Noel,

      Try check out RLC for a long-term hold. It has the highest Return on Assets (ROA) and Return on Equity (ROE) among property issues. It has also the cheapest Price to Earnings Ratio (PER) based on 2011 Expected Earning per share.

      RLC in my opinion will post better than expected net profit for the next quarter because of the excellent take-up of their new projects, especially The Sapphire located in Ortigas. (In less than a month of pre-selling, half is already sold according to my RLC agent). You can verify this by asking an RLC Sales agent.

      Comment by BJ Evangelista | September 17, 2010 | Reply

      • BJ,

        I haven’t done much research on RLC and am in no position to challenge your views about the stock. However, being in marketing, I know a couple trade practices that are being employed, whatever the industry might be.

        When your real estate agent says half the units have been sold in less than a month’s time, he was trying to put pressure on you. He wanted you to decide on buying immediately to avoid the risk of not being able to buy the condo you want. Just my 2 cents.

        Comment by richard | September 20, 2010

    • hi jasper,

      have u noticed that most property development companies are undervalued?

      Comment by cliffhanger | September 18, 2010 | Reply

      • based on my research, here are the following property developers that are undervalued based on price-book value,

        FLI VLL FDC LND.. there are others too that are undervalued, but i wont mention it because of their low trading volume..

        these companies also have a low debt-to-equity ratio, which is always good for any company..

        i just wonder if there is something more than this, or if that industry standards or average for financial statements of property developers tend to be such..

        Comment by cliffhanger | September 18, 2010

    • Overbought is a technical term which means stock price have gone up too fast, too soon.

      What they failed to say is when market or stock is very strong, stock will have the tendency to stay at the overbought level for long period of time. AP and URC is an example of very strong stocks that stayed in overbought level for months.

      Like what Jasper mentioned – it could just be that there were a simultaneous buying of the security as a result of research or emotions.

      Comment by Raymond | September 18, 2010 | Reply

      • My bigger beef is with stereotyping an entire class of stock. How can someone say the property sector is overbought. I own SHNG, and how can this be included in the category ‘overbought’? I mean, no one is buying it!!

        Gus in this current post also said he sees no sign of the stock rise being a bubble. And that fundamentally, the PE ratio is still not very high. To me, that means that we could still look forward to things going even higher from here.

        You can wait and wait for a correction, but by the time it finally appears you might have missed on making real profits. Case in point, when VLL was climbing from 1.9 i waited and waited to for it to go down. I finally bought at 2.4 because it just wasn’t coming down. A very large profit right there, evaporated..

        So now I think, if you like a stock and if you think the price is fair/low then just go ahead and buy it. In the long run, if your reason for buying the stock is correct it should make you happy.

        Comment by jasper | September 19, 2010

  17. Hi Sir Gus,

    For AT, I am thinking to buy its shares but I read a disclosure about the options and warrants that is about to be exercised. Will it be good to buy considering of its possible dilution or was it already factored in the current price? I am optimistic in this stock because of its series of shipments made but I am being held up by this disclosures.

    Comment by Cliff | September 17, 2010 | Reply

  18. sir gus,
    what is your insight on eli? will it follow meg history?correct me if i am wrong, i think it is one among property sector that has been laggard for a while and may soon catch up with the group.
    thank you so much in advance.

    Comment by richard | September 17, 2010 | Reply

  19. Sir Gus,
    I hold the ff issue: mpi 25% ap 25% px 12% dgtl 12% cash 26%. If I were to re-calibrate portfolio and use remaining cash and include tel, dmc and tel . How would you split each issue. Thanks in advance sir your inputs have been a great help. Ytd earnings been phenomenal

    Comment by Mark Anthony | September 17, 2010 | Reply

  20. Hi Sir Gus! The acquisition of a 34.4 percent stake in Pepsi-Cola Products Philippines Inc. (PCPPI) by South Korea’s Lotte Group for around P4.4 billion at P3.50 per share is all over the news. PIP’s share price was 3.0 at the opening but went as low as 2.80 before closing at 2.85. Is it right to assume that PIP’s share price will reach 3.50 in the next trading days? Is this a screaming buy? Thanks a lot!

    Comment by Anthony | September 17, 2010 | Reply

    • Anthony,
      I’m afraid that I’m not convinced that it could go to 3.50 and the market does not seem to be of the conviction either. I think there are better value stocks like VLL or MPI.

      Comment by Gus Cosio | September 18, 2010 | Reply

      • Thanks sir Gus! I think the good side for PIP is its cash dividend play of 0.10 per share(3.5% from it’s current price). MPI and VLL are my core stocks. Both have been giving me steady profits and I also agree that there is still room for a substantial upside.

        Comment by Anthony | September 18, 2010

  21. hi sir gus,

    what do u think about FPH?

    just yesterday their approved listing of 35574 additional shares started to get traded, previous day price was at 69, then yesterdays low was at 67, i was able to buy it at 67.4, it closed at 68.95..

    does it serve as a good sign for the stock, that despite an additional shares listing, it was still able to rebound a very close to its previous day trade?

    Comment by cliffhanger | September 18, 2010 | Reply

  22. Hello sir Gus,

    Seems like most of the holding firms have gone up & LPZ seems to be lagging, do you it’s fundamentally cheap? Would you be a buyer at it’s curent price? Do you see an upside in this stock? It’s subsidiries like EDC & FGEN have been experiencing quite a good run already.

    regards,
    steve

    Comment by steve | September 18, 2010 | Reply

    • LPZ came from 3.7 just about a month or so ago. I would not consider it as a laggard. If anything, it went ahead of its peers.

      Comment by richard | September 20, 2010 | Reply

  23. dgtl? mpi? tel? mer? what prices should we buy in again? whats ur target selling price?

    Comment by gerald | September 18, 2010 | Reply

    • Gerald,
      My style is not to have target selling prices. I look at a stocks fair value relative to its price. Oftentimes, the stock price approximates or even exceeds its fair value. I would normally sell only because I will use the money to buy other stocks or reduce my exposure for one reason or another. That way, I get to own only the stocks that I feel are worth their value.

      Comment by Gus Cosio | September 20, 2010 | Reply

  24. Hi Sir Gus, Congrats on your PX still going very strong and also on your DGTl i think its going to 1.7-1.8 very very soon(october)…Sir gus what can you say about IMI (integrated micro- electronics) im expecting it to go down to 5/sh by january rising price in gold/copper is not good for IMI….

    Comment by jenny | September 22, 2010 | Reply

    • Jenny,
      IMI is an excellent company but I tthink the price is expensive so I choose to wait for the time it becomes cheap to the rest of the market.

      Comment by Gus Cosio | September 22, 2010 | Reply

  25. Sir gus,

    Is Cebu Air (CEB) IPO at 115 to 135 worth buying for?
    What do you think? I’m planning to buy worth 500 shares.

    Comment by noel | October 5, 2010 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: