Gus Cosio says so

Ideas on the Philippine Stock Market

Leveling our heads

6:10pm  Monday  11 October 2010

In today’s market session, I sense some signs of profit taking.  Large cap TEL which I still consider a bell weather stock hit a high of 2764 three trading days ago and is now trading at 2730.  AC which is up slightly today, is continuing with its downward path which was established when it could not get past 418 a few weeks back.  Its alter ego, ALI, apparently cannot keep itself above 18.  another blue chip – SM – after seeing a good run over the last three months is seeing it trend being exhausted.  We can observe a similar tapering off the sustained strength of MBT over the past 6 months when we saw the stock go steadily from 45 to 75 and is showing some resistance at these levels.

Even the strong Gokongwei stocks – RLC and URC – which have been relentless in this rally are looking for a respite.  If not for the forthcoming Cebu Pacific IPO, I would say that JGS is due for some rest as well.  The formidable AGI while not really losing steam, looks to be taking a pause.  All told, there are stocks that really need a rest.

My favorites, DMC and  AP, are still steaming ahead.  The better part of me has been tempted to top-slice already.  I sold my AP much too early; but hey, I did not lose any money by taking my profits.  I took profits on DMC today but I decided not to sell everything because I will surely come back to the stock should it drop in the next few weeks.  DMC has really become a strong favorite for investors who like the strong infrastructure play in the stock.  While SCC is a mining story, the bigger picture remains to be the solid earnings to be seen with its combination with the recently acquired and soon to be rehabilitated Calaca power facility.  This together with its minority ownership of Maynilad and its forthcoming development activities present the over-all picture for DMC.

It may be confusing to some that I am interpreting these price movements as a harbinger for a good correction down the road.  My market sense tells me that a correction at this point should make the market stronger going into the tail end of this quarter.  In a couple of weeks, we shall be seeing earnings reports of domestic companies.  We are already seeing earnings reports from U.S. companies and so far they have been good.  I hope that there will be no disappointments for local stocks.   I would not want the party to end just yet.

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October 11, 2010 - Posted by | Financial markets in Asia

10 Comments »

  1. Hi Sir Gus,

    Nice to have a new blog from you today. Read ABS CBN online report that the Ceb IPO foreign side(70%) was 2x oversubscribe on the initial day.I believe such indicate some strong hands as you said, and that foreign funds seems to like the budget carrier story.This can be a good foundation for Cebu and beneficial for the parent JGS.

    Regards,

    Comment by alex | October 11, 2010 | Reply

  2. DMC is really surprising you know. I thought it was MPI or even VLL that’ll pull ahead, but despite the fact that DMC at 20p was already a multiple bagger, went and gained another 60% more.

    And if ever TEL goes down to 2500 again, Ill surely put some money in it.

    @cliffhanger

    Regarding the numbers you posted last time, I’m of the opinion that they are to be used just as a guideline and not as a hard and fast rule to investing.

    Early this year and particularly last year, you can find excellent companies, blue-chips even, that has low pe and low pb. But now, they are few and far in between (Although SECB and VLL seems to still be cheap even though they’ve gained a lot already). – Basically, a low pe with a high pb would be no problem for me right now.

    I think one should be concerned about the PB when you’re dealing with an asset play.

    Comment by jasper | October 11, 2010 | Reply

    • hi jasper,

      i think it would also be advisable to use the rules of value investing to know what you are getting yourself into. one may invest in TEL because it has a low Price/earnings ratio, but its also priced more than 5x its book value. where at the same time, there are companies that passed most of the financial ratio tests set by value investing. its really up to the person where she/he is comfortable with. one good thing about value investing is that it doesn’t depend on which state the market is at.

      Comment by cliffhanger | October 12, 2010 | Reply

  3. Hi Sir Gus, i`m on the opinion that the 30 Billion Cebu Pac IPO and the 12 Billion SMDC SRO are quite significant and will force our market to continue correcting. While i believe that PSE’s bullish run is very much intact, in the next 2-3 weeks, the combination of profit taking and raising cash for these two favored stocks will drag our index back by at least 100 points from today’s level. Stocks that are quite correlated with market sentiments (e.g. MPI correlation ~ 0.91 in the last three months, MEG correlation ~ 0.93) might be strongly affected by this consolidation.

    Comment by Chris M. | October 11, 2010 | Reply

    • hi, chris.

      Is the correlation simple to compute? Can I use excel? Where can I find sample computations of stocks, commodities, markets, etc?

      Thanks.

      Oliver Mia

      Comment by oliver mia | October 12, 2010 | Reply

      • Yes Oliver Mia, you can simply use excel. It has a trend correlation function.

        Comment by Chris M. | October 12, 2010

    • Hi Chris,
      I think that is a very good observation.

      Comment by Gus Cosio | October 12, 2010 | Reply

    • if my information is right only half of the smdc sro is tradable for this coming month and the remaining half is by may 2011. somehow it will lessen its potential impact on the market.

      Comment by richard | October 12, 2010 | Reply

  4. So, we’ll be seeing some bumps ahead. I should have reserved some cash just to take advantage of the market while it’s temporarily down.

    Comment by Topmace | October 12, 2010 | Reply

  5. Hi sir Gus. Could you share your thoughts on PX’s current slide? ATlas is zooming to where it should be, but PX should be right beside it, if not slightly ahead. Is the TAMPAKAN letdown that much of an issue?

    Comment by jojo | October 12, 2010 | Reply


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