Gus Cosio says so

Ideas on the Philippine Stock Market

Bubbling in a drought?

7:10 pm  Wednesday 13 October 2010   PSEi 4194.06

It may be confusing to some players that many stock prices fell in early trade.  I think many were expecting it and were waiting for prices to come their way.  Surely for ALI, when the implied support level of 16.50 was almost reached, a good amount of buy orders came in.  Actually, the low was only 16.70 which is slightly above the support.  We can observe a similar move in MER which seems to be supported at 215.  Even JFC which is not really a heavily traded stock, look to be well supported at 87 with little volume.  AEV on the other hand has been more relentless than its outperforming subsidiary AP as the pair went in opposite directions.

What I am seeing here is classic bull market psychology where large cap stocks are being bought whenever the market dips.  You can even see it among the big banks as MBT, BPI and BDO are showing good support at these levels.

Today’s moves convinces me that there are still a lot of buyers waiting in the wings for opportunities such as today.  What confirms the bullishness is the price action that happens at the support which is a surge in buying.  Stocks may be looking a bit lofty for us who watch it from day-to-day, but to investors who are compelled to add to their portfolios, their point of reference is not the past but the future.

Yesterday, July export figures came out as a 36.6% increase y-o-y.  I find that very impressive because this brings to a 7-month streak the steady rise in exports, and all of this is happening in spite of a very strong peso.  The net result will likely be more robust consumer sector which effectively fuels 78% of the domestic economy.  With more income filtering through to the hands of middle-income and higher earners of the economy, it is inevitable that housing and property prices will remain buoyant; and property developers should be on the receiving end of demand.  I, for one, made an inquiry in a development near my neighborhood and found out that over 50% of the units had been sold.  The project had not even broken ground yet.

Of course, people like you and me will start to question stock valuations at these levels.  Rightly so because if we did not, we’d be investing purely on reasons of greed.  Such are the conditions that bubbles are made of.  Fortunately, as we look closely at many of the headline stocks, they are not really that bad particularly on the back of low interest rates.  The 10 year government bond looks to be trading below 6%.  When you plug this yield into a discounted cash flow model, you automatically arrive at higher valuations.  When you consider as well that lower interest rates bring about tolerance for higher price-earnings ratios, you have to rethink the notion that stock prices are already sky-high because the numbers will not bear the notion out.

So, is this such a bubbly market?  I do not think so.  Is there a possibility for a deeper correction?  Yes, that is always possible.  What should a sane investor do at this point?  I would say, continue to examine the stocks you want to buy.

Incidentally, I think greater interest has been developing in Cebu Pacific.  I think that is very healthy.  It confirms investor appetite for local assets.  It is also not surprising considering the drought we’ve had for new issues in the last 2 years.

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October 13, 2010 - Posted by | Financial markets in Asia

39 Comments »

  1. in my opinion the market only tells us that it has a bigger ego than any one of us. when every body expect it to correct it didnt its because everybody wanted also to buy on dips so buyers come in. it may be the result of investors level of understanding the market, perhaps many are learned and cautious. they are learned that valuation is par below of any measurement and growth among market outperformers are sustainable. combined these two value and growth plus the undeniable claim for bull run makes the market behave this way.

    stay on focus maintain a handfull issues, accordingly the largest profit is gained not by trading but by just sitting.

    just sharing.

    Comment by richard | October 13, 2010 | Reply

  2. Sir Gus, may I ask your opinion on cmt? i remembered before that you mentioned about this when it was still 0.77…

    Comment by jolly | October 13, 2010 | Reply

    • Jolly,
      It was very cheap when it was 0.77 so I thought of buying some. I sold out when it was around 1.20 so I missed out the further run. I chose to do so because the stock is not so,liquid. I would choose to wait for dips on this one.

      Comment by Gus Cosio | October 14, 2010 | Reply

  3. In my opinion cmt will benefit in the long term from the PPP of the govt. and property boom as a major stockholder of RCM. The same is true with hlcm.

    Comment by Ralph | October 13, 2010 | Reply

    • Ralph,
      It would be good if you can get more information on HLCM,CMT and RCM. They are certainly good stocks given that cement is something which we will badly need as an economy in the coming years. What we need to find out are the benefits of being investors in these stocks: dividends? undervaluation? spectacular growth?

      Comment by Gus Cosio | October 15, 2010 | Reply

  4. sir gus…

    i just realized something..

    cebu pac ipo is priced at 125 at a board lot of 100 shares.. that means that you’d have to have a minimum of 12,500php to be part of cebu pac..

    if we compare it to an established business say Ayala Corp. (AC), last traded price was at 404.60, so if you want to buy it at board lot of 10 shares, you would only have to have a capital of 4,046.00 just be part of the company..

    in that sense, cebu pac’s price would be too expensive sir gus.. but i dont know.. maybe the investors arent thinking about that.. what do u think?

    Comment by cliffhanger | October 13, 2010 | Reply

    • Board lot size of regular stocks follow a table based on price range. If the Cebu Pacific IPO board lot is 100 then it is an indication of how large chunks of stock the underwriters want to work with rather than of how expensive the stock is.

      Comment by Jay | October 14, 2010 | Reply

      • yes but the question still stands for the investor not the underwriters..

        Comment by cliffhanger | October 14, 2010

    • Cliff,
      Board lots are not an indication of cheapness. Board lot should never be your consideration in buying stocks. Cebu Pacific is not cheap but it is not expensive either. I think investors vlue it a lot more thatn it appears.

      Comment by Gus Cosio | October 14, 2010 | Reply

      • ok sir gus, it was just a thought of mine, thanks for correcting me 🙂

        Comment by cliffhanger | October 14, 2010

  5. I’m actually thankful for the correction that’s been happening lately, and the liquidity drain from the Cebu Pac IPO. Hoping some of my target stocks goes below my target threshold too.

    I might sell some COAT to raise cash. Its been months since I last sold anything.. 🙂

    Actually, the time to raise some cash was a week ago. Gus was right when he said some top slicing would be prudent to take advantage of dips. Although in my defense, I never thought some of them stocks will go down to where I’m comfortable buying them again.

    Comment by jasper | October 13, 2010 | Reply

  6. Sir Gus, your have mention about BPI and BDO, can you please share us some insights at their current support price level?

    Comment by alex | October 14, 2010 | Reply

  7. Does anyone own RCB? Its indicative 2010 eps is 4p. That means that using yesterday closing price of 26.8p, its pe is only about 7x. Far too low for the 4th largest bank in the country.

    Is something wrong with the bank? Some bad news I’m not aware of?

    Comment by jasper | October 14, 2010 | Reply

    • i think months ago it was featured in the news that they’re having some kind of dispute with a former client of theirs due to unpaid debt, discrepancies over a huge amount, something like that.. i dont know how it will affect their 3rd quarter financial statements..

      Comment by cliffhanger | October 14, 2010 | Reply

      • hmm.. just found out – It seems that they are a lender to Globe Asiatique for 601.8M.. But on the other hand, their credit card business seems to be booming(+87%)

        Comment by jasper | October 14, 2010

      • damn…601.8M……

        Comment by cliffhanger | October 14, 2010

    • Hi Jasper,

      May I ask if you have a substantial amount of COAT? Thanks!

      Comment by gp | October 14, 2010 | Reply

      • I used to own 20k shares. A lot for a person of my stature. But I sold some and placed it on DMCI, and now I sold again because of RCB – Suddenly not so sure though. But the numbers are good so it might push through..

        It was hard to let go of coat because I believe the biodiesel law will greatly add to the bottom line, and later perhaps I might go back to it again – but RCB is a far stronger company with lots more income and is very cheap pe-wise. So I guess I’m thinking it has a lot more promise to it.

        The bank should be worth more than what it sells for imho.

        Comment by jasper | October 14, 2010

      • Thank you for the info. I see what you mean… RCB Interim EPS (Period: 6mos end Jun 2010) 4.07. Lol! Hitting at least 6 pesos/share in earnings by year end isn’t far fetched. You always seem to do you homework.

        Comment by gp | October 14, 2010

    • Uhhmm… Pacific Plans?
      http://www.manilatimes.net/index.php/opinion/28762-pacific-plans-again

      Comment by Mal | October 14, 2010 | Reply

      • oh my gosh! And I just sold my COAT so I can buy RCb.. :gasp:
        nowwhatdoIdo :confused: :grumble2x:

        Comment by jasper | October 14, 2010

  8. Hi Sir Gus,

    Good Day! Do you have an update on ORE? TIA!

    Comment by Blogspot | October 14, 2010 | Reply

    • Hi Blogspot,
      I learned that some fund managers flew out to palawan today to visit ORE’s site.

      Comment by Gus Cosio | October 14, 2010 | Reply

      • Thanks for the info Sir…Hope there will be a Good development with their activity..ORE is still lagging right now.. More Power S’Gus!

        Comment by Blogspot | October 14, 2010

  9. Sir,
    Volume pretty low today with index surging again. What does this tell you? I have preservations to enter my favorite stocks AP, DMC, MPI. Though I wouldnt want to be left behind esp. earnings report to come-in the next few weeks. On the otherhand, Cebu Pac IPO might drain liquidity. What would be your guiding principles in handling this kind of situation.

    Comment by Mark Anthony | October 14, 2010 | Reply

  10. wonder what happened to PX why the price is not moving from 14.

    Comment by JOEY DELEON | October 14, 2010 | Reply

  11. Heya Buds!

    Just want to share. Citiseconline has emailed it’s account holders saying: Due to excessive demand on Cebu Pac’s subrscription, an account holder can only subscribe to a maximum of 200 shares.

    My my… Looks like a Bluestar to me. hehe Greed is good and greed will fly Cebu Pac on Oct. 26.

    Comment by Gordon Gekko | October 14, 2010 | Reply

    • actually, PAL looks more like bluestar, problems with the labor unions.. i guess u beat lucio tan this time, one heavyweight at a time huh gecko?hehehe

      Comment by cliffhanger | October 14, 2010 | Reply

      • Hi Stallone!

        You’re right. PAL is indeed Bluestar with the labor problems and all. Hehehe you could say that, kid. Someone reminded me I once said “Greed is good”. Now it seems it’s legal. Because everyone is drinking the same Kool Aid.

        Comment by Gordon Gekko | October 14, 2010

  12. Sir Gus

    what’s with SLI? just when I thought it would go up up and away, it goes down and down and down. Should this stock be let go? Thanks

    Comment by Jacob | October 14, 2010 | Reply

    • Jacob,
      I should not ask you to hold a stock that you are uncomfortable with.

      Comment by Gus Cosio | October 14, 2010 | Reply

      • And don’t forget that SLI is jockeyed stock for now.

        PD: sold at 2.45 from 2.15..will buy if i have some cash but unfortunately i was stuck 100% now.

        Comment by alssy | October 14, 2010

  13. Hi Sir Gus,
    Do you think its safe/good time to buy SLI stocks? I recall that you are holding to some of this, right. Or would it still continue to correct? It seems that it was left behind as most property stocks have already recovered from the correction. Any hint of its TP?
    Thanks

    Comment by alvin | October 14, 2010 | Reply

    • Alvin,
      I am still holding SLI and I believe it has some room to go.

      Comment by Gus Cosio | October 14, 2010 | Reply

      • Hello Sir Gus,
        With regards to SLI, are their any developments of foreign funds which are about to come in. I believe the management is quite experienced so the company is in good hands. By the way how long do you plan to hold SLI?

        With regards ORE.. i read above that their are some fund managers checking the site area. And shipments I read in a few papers are to be shipped by December. Are these fund managers local or foreign?
        Thank you sir and more Power 🙂

        Comment by Foreign Investor | October 14, 2010

      • Sir any thoughts?
        Thanks

        Comment by Foreign Investor | October 15, 2010

  14. anyone know why MBT is going down?

    Comment by JOEY DELEON | October 15, 2010 | Reply

    • Joey,
      MBT is ripe for consolidation. It challenged the 75 level three times but failed a significant break-out. Such an action normally persuades position holders especially momentum traders to take profits. In my view, MBT could go as low as 65 which may be too strong a support because the stock will be too cheap at that level.

      Comment by Gus Cosio | October 15, 2010 | Reply

      • Thanks Gus! It seems the price is at par with PNB. I love your blog!

        Comment by JOEY DELEON | October 15, 2010


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