Gus Cosio says so

Ideas on the Philippine Stock Market

Investing with an altitude

9:45pm  Sunday  11 October 2010

There were two things that I read over the weekend that should provide us the explanation of the underlying support for our equity market.

The first one is from the chief investment officer of London and Capital, Ashok Shah who said, “There’s a massive credit upgrade cycle in emerging markets. That means capital gains. Advanced economies are riskier than emerging markets. That hasn’t happened in my lifetime.”

The second one is from Guy Monson of Sarasin and Partners who said.”This liquidity is being injected into markets, it’s not being taken up on the ground by borrowers and companies increasing their capex (capital expenditure) and it’s flowing into the stock market. So good markets, bad economies.”

Surely, while the Philippines is not a top of mind destination of global equity funds, some allocation is coming our way and will continue to do so.  For one, many fixed income portfolios are already very comfortable with Philippine, and that should filter down to their equity portfolios eventually.  My guess is that this move will keep the large cap stocks underpinned and the index should remain above the 4000 level for some time.  The notion is that global liquidity is discouraging domestic wealth from seeking refuge abroad as it did in the past.  Furthermore, the strong corporate earnings of PSE listed stocks makes investing in them a low risk decision.

What I would like to point out is that in a bull market, one should ride the bull.   I notice a number of readers get worried about stocks running their course.  Do not forget that a correction or a consolidation is not the end of the bull run.  It is merely a move that allows investors to get cash back into their positions so that they could re-invest at cheaper prices.  So if stocks like MPI, DMC and SCC are looking quite daunting at these levels, sell a portion of the position as a hedge. However, getting all into cash might not be such a good idea especially if entry prices were very low.  I have to stress that money management is key at possible market inflection points such as what we could see now.

As far as Cebu Pacific is concerned, I am  reading the IPO material and the ideas that caught my attention are that this airline is the fourth lowest cost per seat kilometer among all carriers.  Among the budget airlines in the region, it has the highest revenue per seat kilometer.  What also tickles my fancy is that the bottom line is growing much faster that the top-line.

There are misgivings that the Cebu IPO could sap out all the money punting this market and could lead to a major consolidation.  It could, but I think of it as positive for the market in general and for Cebu in particular.  I do not think that this IPO could tank simply because there would not be too many sellers.  Again, the premise I am working with is that we are in a bull market where money is chasing after assets and return.  In my book, I see a better return in Cebu Pacific than I see in cash, so I will not mind owning some.

Similarly, global investors seem to be favoring materials and resources.   This makes me very comfortable with good local mining stories – PX and ORE.  For those who can withstand poor liquidity, the cement stocks may be worth looking at as well.  While I continue to be bullish, the threat of consolidation urges me to keep a comfortable cash level in case things get cheaper.

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October 10, 2010 - Posted by | Uncategorized

35 Comments »

  1. Hi, Sir Gus.

    When are your friends going to visit ORE’s minesite?

    Thanks and have a good week to all of us!

    Oliver Mia

    Comment by oliver mia | October 10, 2010 | Reply

    • soon, i believe.

      Comment by Gus Cosio | October 11, 2010 | Reply

  2. Sir Gus,
    Thanks for all the insights, it indeed help us a lot especially to the newbie. I just started to invest in stock market last week and I want to know your insights on the stocks that I’m holding. I want to hold maybe for 3 to 5 years or more and can even accumulate if it will dip,which of the 2 can I go is it MPI or DMC?I both want this but then I want to hold 2 stocks only for long term.I have an ORE and I can patiently wait for a year or so. Thanks.

    Comment by Mikayla | October 10, 2010 | Reply

    • Mikayla,
      I think you can hold DMC and MPI together but not in equal amounts, i.e. 30% MPI and 70% DMC or vice versa. Also, I would not put a time deadline. I would say to myself, I will own a stock for as long as the earnings prospects and growth are good. For a stock like ORE, it is really the outlook on metals and materials that will keep the stock interesting apart from its operating results, of course. Right now, the prospects on materials is growing.

      Comment by Gus Cosio | October 11, 2010 | Reply

  3. thank you for that wonderful insight… been following your blogs just recently… may i ask, is d’ clamor about ORE November shipment will have same effect of dividend announcement? what i mean is will d’ price of ORE after shipment will drop just like any stock declaring dividend that rise up then suddenly dropping during ex-date.

    Comment by blooddeewings | October 10, 2010 | Reply

    • Bloodwings,
      I do not write this blog to predict. If you notice, stocks that I talk about in this blog are stocks that I see as good opportunities for reasons or information available to me.

      Comment by Gus Cosio | October 11, 2010 | Reply

  4. Hi Sir Gus! I just subscribed to Cebu Air’s IPO via my online broker. My initial plan is to hold this stock for at least 6 months. Do you have a target price for CEB? Thanks in advance!

    Comment by Sonn | October 11, 2010 | Reply

    • Is it already possible subscribing to CEB at this time? How to do it? Are you a CEB employee sir? I thought we still have to wait on 26th Oct for it…

      Comment by blooddeewings | October 11, 2010 | Reply

      • I am not a Cebu Pacific employee. I have received notice from my broker that I can apply for a subscription.

        Comment by Gus Cosio | October 11, 2010

      • Sir Gus, sorry for not clearly addressing my questions to Sonn. I just thought that only employees can avail an advance subscription to CEB. Am just new with IPO stuff and i dont really know how acquire any IPO. Are the charges the same? Is there any discounts given to advance subcriptions? Are CEB employees discounted?

        Comment by blooddeewings | October 11, 2010

      • Hi bloodeewings! Yes, it is already possible to subscribe to CEB’s IPO. I just clicked on the Cebu Pac IPO announcement banner on CitisecOnline’s home page, and entered the number of shares I wanna apply for.

        No, I am not a CEB employee.

        Oct 26 is CEB’s listing date. However, brokers are already offering CEB’s IPO to their clients. For CitisecOnline, offer period started last Oct. 8 and will end Oct. 14. I hope this helps. 😀

        Comment by Sonn | October 11, 2010

      • thank you! I’m just curious… Happy trading…

        Comment by blooddeewings | October 11, 2010

    • Sonn,
      As I have continue to say, I do not have price targets. I follow the stock closely to see whether or not it becomes expensive.

      Comment by Gus Cosio | October 11, 2010 | Reply

  5. Hi Sir!

    I currently have a little paper loss with PX, I got this stock around 15/share. Am I going to loose money if I plan to hold it year end? Sorry, I’m kinda new in the market.

    Comment by EJ | October 11, 2010 | Reply

    • Frankly EJ, I don’t know. When investing, you will definitely lose money if you do not know what you’re doing. May I suggest that you find out more about PX from available sources.

      Comment by Gus Cosio | October 11, 2010 | Reply

  6. Sir Gus,

    What you insight on PX loosing Tampakan? Thanks sir Gus..
    PX – 25% of my Portfolio.

    Comment by jaayem | October 11, 2010 | Reply

    • I think PX has enough minerl reserves for the time being. I’ll have to dig up more info on the Tampakan story.

      Comment by Gus Cosio | October 11, 2010 | Reply

  7. hi sir gus,

    here are my numbers on the stocks you mentioned on your previous post.

    TEL
    Price/Book Value = 5.49
    Debt/Equity = 1.81
    2010 Price/earnings = 11.73
    Product of (Price/Book Value)*(Price/Earnings) = 64.36

    AGI
    Price/Book Value = 1.93
    Debt/Equity = 0.89
    2010 Price/earnings = 10.96
    Product of (Price/Book Value)*(Price/Earnings) = 27.75

    SMDC
    Price/Book Value = 4.07
    Debt/Equity = 1.19
    2009 Price/earnings = 10.58
    Product of (Price/Book Value)*(Price/Earnings) = 43.11

    DMC
    Price/Book Value = 3.47
    Debt/Equity = 1.41
    2010 Price/earnings = 10.61
    Product of (Price/Book Value)*(Price/Earnings) = 47.77

    SECB
    Price/Book Value = 1.81
    Debt/Equity = 6.72
    2010 Price/earnings = 10.07
    Product of (Price/Book Value)*(Price/Earnings) = 18.20

    VLL
    Price/Book Value = 0.77
    Debt/Equity = 0.48
    2009 Price/earnings = 6.98
    Product of (Price/Book Value)*(Price/Earnings) = 5.37

    ORE
    Price/Book Value = 2.75
    Debt/Equity = 0.13
    2009 Price/earnings = -29.71
    Product of (Price/Book Value)*(Price/Earnings) = -60

    please give me comments on the numbers sir gus, thanks!

    Comment by cliffhanger | October 11, 2010 | Reply

    • according to Ben Graham’s value investing standards for defensive investors, here are the recommended values for the numbers..

      Price/Book Value = at most 1.30
      Debt/Equity = 0.50
      Price/earnings = 15 or less
      Product of (Price/Book Value)*(Price/Earnings) = 25 or les

      Comment by cliffhanger | October 11, 2010 | Reply

    • Hi Cliff,

      Can you tell how to get these kind of data? Would also want to review my current stocks as well. Thanks!

      Comment by Blogspot | October 11, 2010 | Reply

      • its data coming from citisec and firstmetrosec 🙂

        Comment by cliffhanger | October 11, 2010

  8. Hi Gus, Good Day!

    What is your assesment on Atlas Mining? It was up today by 9++ percent, this might be due to their latest news & the details of the briefing last Oct 8, details of the presentation was also posted on the AT website. What is your take on this one? will it continue to go up?

    Thanks!

    Comment by Blogspot | October 11, 2010 | Reply

  9. Hi Sir Gus,

    How do you define ‘comfortable cash position’? If I have P50,000 in cash and equities, how much would your ‘comfortable cash equities be’?

    Comment by hokanu | October 11, 2010 | Reply

    • Hokanu,
      For me a comfortable cash position is one which allows me to buy cheap stocks when I’d want to. In my case that would be 25% of my portfolio, at least.

      Comment by Gus Cosio | October 11, 2010 | Reply

  10. Hi sir Gus,

    what do you think about APC?

    thanks!

    Comment by trix | October 11, 2010 | Reply

    • Frankly Trix, I’d took a position on APC a few months back but I took profits too soon because the information flow was scant. Sorry, but I can’t give you a sound opinion on the stock. The only story that I know is that the SY group may use the company for their venture into the power business.

      Comment by Gus Cosio | October 11, 2010 | Reply

  11. Hi sir,

    This is my first time to participate in an SRO. I am availing from SMDC and given that, should I sell now my remaining shares and then use its proceeds for the cheaper shares or just infuse more funds for the additional shares that i would be given? I have already set aside spare cash for this but Im just curious on what people really do for these situations..

    Thanks!

    Comment by Alvin | October 11, 2010 | Reply

    • Alvin,
      You can work it out by computing your eventual cost after the SRO is paid. It will make better sense for you and you’ll know what to do.

      Comment by Gus Cosio | October 11, 2010 | Reply

  12. hi sir gus,

    what do u think about CHIB?

    i think its the most sound business on the banking sector so far based on its numbers..

    Price/Book Value = 1.55
    Price/Earnings = 11.55
    debt/equity = 6.49
    product of (p/bv)*(p/e) = 17.90

    but i want to know your take on it sir gus.. what can we expect out of CHIB?

    Comment by cliffhanger | October 11, 2010 | Reply

    • Hey Cliff,
      I think CHIB is a good stock, not heavily traded but a good store of value. I think it will return around 15% a year steadily.

      Comment by Gus Cosio | October 12, 2010 | Reply

  13. I always like CHIB above all banks, if you look at the financials – impressive. Dividend was the key factor in CHIB, on my investment i gained 20% from stock and cash dividends, in addition gaining double digit gain from my cost. As investor, what else can i look for.

    Comment by art | October 12, 2010 | Reply

  14. Hi Sir Gus, May I ask you?If I’m going to invest cebu pacific shares.How long I’m going to keep it for investment.It is long or short term investment ? Thanks

    Comment by George | October 12, 2010 | Reply

    • George,
      In my opinion, Cebu Pacific should be part of a core portfolio for the next 6 months.

      Comment by Gus Cosio | October 12, 2010 | Reply

  15. hi gus

    what’s your target price for SLI at the end of the year? it’s one of the stocks that i intend to keep at least until early next year.

    tnx

    Comment by AbysmalSpecter | October 12, 2010 | Reply

    • AbysmalSpecter,
      I really have no target for SLI. I simply think that it could go past 2.50 between now and year end. I also do not handcuff myself to time periods. My training in economics has made me believe that the price mechanism is the best allocator of risk and resources. For that reason, I ask myself from time to time if I still like a stock given its current price.

      Comment by Gus Cosio | October 12, 2010 | Reply


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