Gus Cosio says so

Ideas on the Philippine Stock Market

Slippin’ and dippin’

11:10pm  Wednesday  20 October 2010

Today was something of a roller coaster ride.  The market opened with sellers taking the market down with broad range of large cap stocks.  In my view, those stocks which sold down were from weak holders, i.e. momentum traders and those who had become nervous with the strength of the market.  What is clear to me is that at lower levels, the market found strong demand for stocks like AEV, AP, DMC, AC, TEL, MBT, just to name a few.

From where I was sitting, a good number of my favorite stocks looked worthy of being tucked away into long-term portfolios even if I believe that we will not see the market spike up as much as it did in September.  The reason being that value turnover has not been as robust as it was in late September.

The benefit to investors of periods such as this is that stocks can really get cheap.  Some examples:

a. AP traded to a low of 25.10 then closed at 26 after seeing a high of 26.20.

b. EDC traded to a low of 5.94 and closed at 6.01.  My view is that this stock is a buy below 6.

c. DMC traded to a low of 32.70 which is probably a safe level to buy the stock.

d. SMPH hit a low of 11.54.  It was 11.90 yesterday, and it closed 11.70 today.

So far consolidation moves have been in short intra-day periods.  What it tells me is that sellers are not at all anxious about their positions.  Many are sitting on comfortable returns and do not mind giving some profits back to the market in anticipation of further strength down the road.  This is what bull markets are made of.

I hope you notice that I have been avoiding comments about the foreign markets particularly the DJIA or the S&P500.  It has become clear to me that there is a divergence of the PSEi from the developed markets for the time being.  The theme is really Emerging Asia and a lot of capital is coming this way making very little sense for even locals to look to markets abroad.

There are pretty good stories in local stocks.  Lately, the mining sector has een showing a bit of life.  I sense that with a global stock-piling in process, we should be seeing good metal prices for another 2 or 3 years.  That is also why I continue to hold PX and ORE, especially because in a week or so, a mining company named Nickel Asia will be listing in the market.  The IPO should provide another benchmark for mining shares.

I think that as greater constructiveness develops in the market, even third liner stocks will be livening up.  Over the last 3 days, I have been seeing interest in stocks like FOOD, RFM and COAT.  Of course, stocks like SLI or VLL need to develop greater following from among fund managers both local and foreign.  I am hopeful that can happen particularly because these are pretty decently managed companies.  I hope there is more fodder to feed the bulls because everyone would like to see this herd keep on running.

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October 20, 2010 - Posted by | Financial markets in Asia

23 Comments »

  1. Hi S’Gus, Good Morning!!

    What would be the impact on Nickel Asia’s IPO on ORE? or to other mining stocks? TIA!

    Comment by Blogspot | October 21, 2010 | Reply

    • Hi Blogspot,
      I hear Nickel Asia will be offered at 12X 2011 PE. ORE, according to an analyst I know, has estimated 2011 EPS of 1 peso implying a PE of 3.4X based on yesterday’s price. My instinctive reaction is that ORE could trade to about half of Nickel Asia’s PE or 6X. In simple arithmetic, that should bring ORE to 6 pesos. However, do not look at 6 as my forecast. I am simply saying that the potential is at least 6. Caveat emptor nevertheless.

      Comment by Gus Cosio | October 21, 2010 | Reply

      • Hi Sir,

        Will we see consolidation up ahead for ORE? It’s been flying these past 2 days, and with it’s great potential, i’m planning to buy more.

        Thank you Sir Gus, your insights are very helpful!

        Comment by C | October 21, 2010

      • wait a minute, ORE has such a low pe? I thought it was in the high 20’s?

        Comment by jasper | October 21, 2010

      • Nickel Asia is Philippine’s largest nickel mining company, (and very established to add to that).

        Between Nickel Asia and ORE, I would go 75% for Nickel Asia for long-term and would probably go 25% for ORE on short-term speculative buy (target of PE 6X seems to be achievable, specially if you consider the personality behind ORE that driving its stock price).

        According to this report http://www.manilastandardtoday.com/insideBusiness.htm?f=/2010/september/29/business1.isx&d=2010/september/29
        the intention if IPO is for the establishment of HPAL facility (which means that low-grade nickel will be processed here in the Phils instead of shipping it out of the country).

        Five things why I like Nickel Asia –
        1. Mining claim
        2. Reserves
        3. Experience in the industry
        4. Their size
        5. Their partner (Sumitomo Metals)

        Comment by Raymond | October 21, 2010

      • thanks Sir for the inputs! More Power!!

        Comment by Blogspot | October 21, 2010

  2. Hi sir,

    I remember reading in one of your posts that you recommended a certain % of holdings in relation to DMC and MPI.. that it should not be equal or so as my memory recalls. Recently, I have been buying on dips for DMC and as i checked my portfolio, their difference is now just a bit. Would you recommend shifting majority to one stock or should I be sound having equal amounts?

    Thanks

    Comment by James | October 21, 2010 | Reply

  3. Mr. Cosio,

    With the recent development of China’s export prohibition of up to 35% of rare earth elements, it makes a wise investor look for other sources of these precious minerals. To the best of your knowledge, are any mines in the Philippines producing even small amounts of rare earth elements as a bi-product in the Republic of the Philippines? I have done my due diligence but I couldn’t find any viable figures for production in the RP.

    Respectfully,

    Comment by Juanito | October 21, 2010 | Reply

  4. O, another IPO. That would be interesting! 😀

    Comment by Topmace | October 21, 2010 | Reply

  5. Can someone post some numbers about ORE? I tried downloading the latest quarterly from pse but it was 15MB.. too much. It will take a lot of time for my poor connection :/

    Comment by jasper | October 21, 2010 | Reply

    • todays face value for ORE

      debt/equity = 0.13
      Price/Book Value = 2.75
      Ores earnings from 2007-2009 have been negative..
      too speculative for value investing standards..everyone has been betting on this shipment that’s been talked about for the past week..

      Comment by cliffhanger | October 21, 2010 | Reply

      • They have negative earnings for those years because its a start up. They were preparing the site for mining using investor’s capital. Now its ready to mine the ores and sell them. Gus posted future(2011) approximations of its earnings in a previous post.

        https://guscosio.wordpress.com/2010/10/05/mine-is-the-silver-and-mine-is-the-gold/

        If those estimated numbers are close to its real value, then the company will be profitable. Use a conservative approach with those numbers and see if the current market price offers a comfortable margin of safety for you.

        Comment by Rudy | October 21, 2010

  6. Why is the market halted today?

    Comment by denchjp | October 21, 2010 | Reply

    • there’s a bomb threat at the Makati Stock exchange at aroung 1030 am

      Comment by thewingedpalate | October 21, 2010 | Reply

    • Their is a bomb threat in the PSE

      http://www.abs-cbnnews.com/business/10/21/10/pse-gets-bomb-threat-trading-halted

      Comment by Foreign Investor | October 21, 2010 | Reply

    • Thanks for the info. I’m here in Japan having coffee and I was told it was halted “for security reasons”…no other details were given. 😦

      Comment by denchjp | October 21, 2010 | Reply

      • OK everything is fine now…no bomb found.. hopefully momentum in the PSE stays.
        Amen

        Comment by Foreign Investor | October 21, 2010

  7. Sir Gus,
    I’ve been holding FOOD for a month now and again added some more today. FOOD (formerly TUNA) is good fundamentally although it is not getting too much attention right now. I also got ALI, FLI, MPI, PX, SMPH and VLL in my portfolio ( http://everyonecaninvestinstocks.blogspot.com/). Could you please share your thoughts or advice regarding my portfolio sir? Thanks a lot in advance.

    Comment by RmR | October 21, 2010 | Reply

    • LOL. let me share to you something from my experienced. I shorted my SMPH because it’s not moving.I shorted my FLI and transfered my fund to MEG.ALI and PX are good stocks. MPI base on fundamental it’s good stock. VLL not on my list. TUNA is good on long term but not in my speculative indicator.

      Comment by marketbeginner | October 21, 2010 | Reply

      • what was so funny about my portfolio or my post sir marketbeginner?

        Comment by RmR | October 21, 2010

      • hmm.. LOL is just an expression of being happy not laughing on anybody. And maybe I have to be happy even though things are not good today because of so many issues in the world today.

        Comment by joppy gwapo | October 21, 2010

    • actually for food, price/book value = 43…too high…think of it as if you are buying a 1million peso house to 43million pesos..

      Comment by cliffhanger | October 21, 2010 | Reply

      • it’s ok. the CPE is only at 10.356… it’s just waiting for 1 big push. i’ll be keeping this for long term.
        LOL i believe stands for Laughing Out Loud that’s why i’ve asked what was so funny sir joppy. have a nice day

        Comment by RmR | October 21, 2010


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