Gus Cosio says so

Ideas on the Philippine Stock Market

An Easing Quantity

11:50 pm  Sunday  7 November 2010

First of all, I would like to thank everybody who has been commenting on this site.  I think the exchange of ideas have been very constructive.  There are days and weeks when I am simply very busy and have no time to post my thoughts.  What made the past week even worse was the humongous traffic jam caused by the diggings on the Magallanes interchanged.  I had to go to meetings in Intramuros and Binondo Wednesday, Thursday and Friday and sitting in traffic for two hours each way is just too energy draining.

Anyway, I would like to address a few issues particularly CEB, TEL, ORE and Nickel Asia.

CEB started with a bang and traded up to a high of133.50 on its opening day.  Unfortunately, it started to stall as local sellers came in droves early in the week.  If you ask sellers their motivation in selling, it is not that the stock is expensive nor is the stock’s price is too expensive.  It is simply because people do not see the stock being further ramped up days after the IPO.  In essence, investors will have to wait until aggressive buyers eventually emerge.  I will not venture a guess when that will be, rather, I will just mention what a fund manager of a large portfolio had shared with me.  This guy thinks the stock should move to 170 in the intermediate term.  What this tells me is that there are fund managers of the same sort out there, and eventually the compulsion to add more CEB to their portfolios will be what drives the stock.  The question is whether or not it is worth the wait.  In my case, I am willing to wait.  I think most of the punters have sold already, and the stock is now in stronger hands.

TEL was sold down because 3Q results we slightly below expectations.  The newspapers mentioned Php 2 billion in labor related costs as the company lays off as many as 1,800 employees.  TEL is down over 8% although company earnings guidance have not changed.  In my opinion, what we are seeing is a change in the role of TEL among foreign fund managers.  In years past, TEL was bought as a surrogate for the index as TEL had close to 30% weight at the time.  Recently, TEL’s weight in the PSEi has been reduced to around 15%.  In fact, the MSCI Philippine index gives it around a 12% weight.  What has been happening is that stocks such as AEV, AP, AGI, MBT, to name a few, have gained higher weights as their market capitalization have grown faster due to the out performance of their price.  TEL is still an important stock and will continue to trade actively except that it will be less important.  As to its value, I believe that it is already cheap at these levels, i.e. at 2436.

I can be straight forward with ORE as my focus is what I have seen on 2011 earnings estimate which is EPS of 99 centavos per share.  What degree of confidence do I attach to this estimate?  Enough to put my own money in the stock.  I also just learned that ORE management is already looking at putting up a sintering which is a kind of nickel smelting facility.  For the next few months, I am convinced that ORE’s price will steadily gain, but I must stress that patience will be required.

As to Nickel Asia, I believe that this is the most experienced, most credible mining operations in the country right now.  Through its Rio Tuba and Taganito mines, it has been producing nickel concentrates since 1980 when I first was introduced to the company.  I had a glance at the IPO materials, and the future production and earnings numbers are not questionable at all given the experience and reputation of he company.  Even the IPO price of Php 15 puts enough upside on the table for investors.

Over all, I think Friday’s decline in the index was a very good correction.  Essentially, I see it as money going out of TEL in order to go into more exciting stocks in the index.  I would continue to watch JGS because it is attracting a bit of attention as a result of CEB.  I think VLL is also putting up a good showing.  I would be slightly cautious on EDC and the Lopez stocks as they look very vulnerable to consolidation.  Nevertheless, I would not ignore small stocks that have been doing a good show such as SLI and even RFM – a strong recovery play.

Bear in mind that the trend has not yet been broken, and if we continue to consolidate, it will only make this market stronger.  Money continues to move this direction due to round two of quantitative easing in the U.S., and I see no strong reason for that to stop in the near future.

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November 7, 2010 - Posted by | Uncategorized

44 Comments »

  1. Sir:
    I want to ask about SPH, the stock price was down tremendously and I do not see any sign of recovery. Any advise on SPH? As for CEB, I read from a business article that western financial managers are looking for a bigger chunk. I agree with you sir that CEB stocks were in strong hands at this time, impatient IPOers have released their share. How about Atlas mining? Are they in full operations at this time?

    Comment by art | November 7, 2010 | Reply

    • Art,
      SPH was not a very good experience for many investors. It has not been well researched as a result. At present levels, it is probably very cheap but it may take some time before people appreciate the stock again. As far as CEB is concerned, I still hold the stock and will be willing to hold on to it for some time to come. AT is in the MSCI Philippine index so it has the tendency to be more expensive than other mining stock which means it is probably good to identify the range where you are comfortable trading it.

      Comment by Gus Cosio | November 9, 2010 | Reply

  2. I’m still torn on what position to sell so i can take advantage of the ipo. I really like rcb but im afraid i may have to shift that to nickel since i already have secb and chib.

    As for TEL – i think that even if earnings stay as-is in the near future, a 9% yield is nothing to sneeze at. Besides just how much growth can you expect from 45B in earnings?

    A prudent portfolio should not only contain growth stocks, but also i think it would be wise to have some dividend strategy thrown in there somewhere. TEL would be a good dividend/defensive stock imho.

    Comment by jasper | November 7, 2010 | Reply

    • although after taxes on dividends it shaves off about a percentage point leaving an 8% yield. good to keep in mind when comparing investments some of which may carry a moderate yield but are tax free.

      Comment by ed | November 8, 2010 | Reply

  3. More Power Sir Gus!

    I will still hold on ORE & will subscribe with Nickel Asia’s IPO. God Bless us all!

    Comment by Blogspot | November 8, 2010 | Reply

    • Sir Gus,

      Since NICKEL ASIA will be open this November, maybe you could give us more detailed fundamental analysis based on your perception, for our guidance. Hope to see it on your next Blog.. thanks!

      Comment by Blogspot | November 8, 2010 | Reply

  4. Hi Sir Gus!

    I’m currently based in the Caribbean Islands and have come across your blogs from our Metrobank platform. Me and friends of mine just recently pooled our hard earned income and invested it on some portfolios in the Philippines. Your perspective of the local and global events and its impact on the Philippine market is providing us some good insights. Let me thank you for your generous thoughts and opinion and I hope and pray you never get tired of doing this.

    I have been currently looking and researching about the Philippine market by 2011 to position ourselves as early as now. In the past few days, I have been “Googling” the web and see if I could find some experts analysis or documentary about the outlook of the Philippines in 2011, politically and economically. After some few clicks, I found a website that could give me the stuff that I was looking but unfortunately the document cost around $500. So I said never mind and that I will just have to keep reading your blogs and wait for the 2010 annual reports – That should give me a fair understanding of what 2011 will be.

    I see that you believe that there are no reasons for the current trend to stop – I tend to agree on this but I’m having second thoughts on its long term momentum. The QE2 is aimed at buying $600bn of long-term Treasury securities by middle of next year and because of this, correct if I’m wrong, it would be reasonable to expect that foreign investors would be repositioning its portfolios by first half of next year. On another note, the US labor department announced a net gain in jobs in the last five months. Though the unemployment rate remained stuck at 9.6%, still the job gains should give Americans a bit more income to spend, providing some support to the sluggish economy. With this decisive move of the US Fed to pump up money to the system and jobs generating some steams to a moving train, and not to mention the result of the G20 to be held in South Korea, I’m quite a bit apprehensive of the 2011 outlook.

    Can you please give us your general outlook for 2011. I would love to see your thoughts on this.

    Comment by Ryan | November 8, 2010 | Reply

    • Ryan,
      I’ll do an outlook write up in the near future.

      Comment by Gus Cosio | November 9, 2010 | Reply

  5. Will definitely add more ORE and Nickel Asia to the portfolio. Quantitive easing in the US depreciates the dollar, which turns commodity prices higher. December should be very interesting.

    Comment by Nivla | November 8, 2010 | Reply

  6. Sir Gus and everyone, How do I avail of Nickel Asia IPO? Is it available thru citiseconline or firstmetrosec? I have been searching these websites (i have account) but can’t seem to find IPO offer thru them. Thanks.

    Comment by jovy | November 8, 2010 | Reply

    • For firstmetro, there is a link in the upper right corder – “forms”. You go there and download the nickel asia subscription form. After filling that up, you just scan or fax.

      Firstmetro should really put ipo-related thingies in the front page news so people can easily verify.

      Comment by jasper | November 8, 2010 | Reply

      • First Metro should allow IPO subscriptions via online. Citisec has that feature but it doesn’t have IPO subscription for Nickel Asia yet.

        Comment by Sonn | November 8, 2010

  7. I will definitely hold on to my cash until Nickel Asia comes in. I think I’m too late to buy ORE stocks, because my stocks were tied up somewhere.

    Does anybody have any news about LR (Resorts World)? I bought stocks a month ago and it was down, now suddenly, last Friday it went way up, with high volume. I asked my friend who works there, and he said most of the PAGCOR players have shifted to Resorts World, and I read somewhere that it’s an undervalued stock despite its strong performance in the past years. Anybody care to comment?

    Comment by Kristin | November 8, 2010 | Reply

    • Maybe you’re confusing this stock (LR) with MEG, which owns Resorts World Manila…

      Comment by James T. | November 8, 2010 | Reply

  8. I just sent subscription for 1,xxx shares of nickel asia. Thats just the amount I can manage to muster without selling some of my precious holdings..

    13 month pay can’t come soon enough 😦

    Comment by jasper | November 8, 2010 | Reply

    • Subscribed to Nickel Asia too. I have until Wednesday to decide which stocks to sell to come up with the required amount.

      Comment by Sonn | November 8, 2010 | Reply

  9. what can you say about PX – selling price anyone? thanks!

    Comment by JOEY DELEON | November 8, 2010 | Reply

  10. Sir Gus,

    What are your thoughts on DGTL? It’s been moving sideways for some time now. Thanks!

    By the way, here’s a news I just read today:
    http://www.philstar.com/Article.aspx?articleId=627999&publicationSubCategoryId=66

    Comment by Sam | November 8, 2010 | Reply

  11. I think there’s a panic.

    Comment by marketbeginner | November 8, 2010 | Reply

    • panic? why whats.. happening? :confused:

      ohhh.. tel is going down some more. hope it trends to 2300.. nyehehehe..

      Comment by jasper | November 8, 2010 | Reply

      • Its only a Healthy correction….Not yet a Panic selling..

        Comment by Sophia | November 8, 2010

    • hey marketbeginner,

      panic selling is a lot worst than this… i’ve seen 3-5 percent drops in a day… now that is crazy… this is nothing…. its consolidation..

      Comment by Norman Go | November 8, 2010 | Reply

      • yup. sorry! I think I and my friends just panic. Thought it would go down 10%.

        Comment by marketbeginner | November 8, 2010

  12. The market was in down so fast. I sold my stocks to cut loss.

    Comment by marketbeginner | November 8, 2010 | Reply

    • market beginner

      this is not panic selling it is profit taking and reallocation or repositioning of holdings. it is your time to buy..do not panic nothing to worry..it is a normal way of life in stock market trading.

      Comment by richard | November 8, 2010 | Reply

      • yup. so many corrections. I thought it was end of the world.lolz i can breath now. At the last minute I got a chance to buy AEV and ORE.

        Comment by marketbeginner | November 8, 2010

    • > The market was in down so fast. I sold my stocks to cut loss.

      you remind of the guy who sold his edc shares at 4.5 to ‘cut loss’ (He bought at 4.6 i think)

      a temporary downward trend of a particular security is of no concern. When I bought VLL at 2.5 it immediately went down the next day to 2.3 – but since the fundamentals are good, i had faith that sooner or later the price will rise.

      rule – in the long run, price will follow earnings or book value.

      I think if you’re not prepared to ride a stock through its ups and downs you should not buy that particular stock. As peter lynch said, if you aren’t prepared to accept that a stock you buy will lose -25% of its value, you wont earn in the game.

      – just my opinion.

      Comment by jasper | November 8, 2010 | Reply

      • I remember asking sir Gus if I should cut losses on EDC to buy a better performing stock (i think it was AGI at 5 or 6 level). Didnt sell EDC though. And i still managed to buy AGI =)

        Comment by Sonn | November 8, 2010

      • hi sonn,

        was that you? hehe.. sorry didn’t mean to imply anything. and also there were lots of people who asks gus if they are gonna sell and what not. but i just get reminded of that particular instance everytime someone asks if they are gonna sell a good stock to cut loss.

        Comment by jasper | November 8, 2010

      • lolz. i was confused a bit bcoz i was trying to recall if that was me. because I didn’t buy my edc yet even though it’s one of the company i want to bought but just waiting for indicators. I know perter lynch rules and principle but I’m using jesse livermore trading rules. so, that’s probably not me.lol

        Comment by joppy gwapo | November 9, 2010

  13. consolidation guys… watch-out for AP and AEV stocks

    Comment by jopard | November 8, 2010 | Reply

    • what about AP/AEV?

      Comment by noob | November 8, 2010 | Reply

    • sad the market was down today…. AP and AEV could have really flown high. Guys, You can’t go wrong with these 2. Both had TRIPLE DIGIT Growth in net income for 3Q. These two are a solid good profitable story. I placed my bets here.

      Comment by Gordon Gekko | November 8, 2010 | Reply

      • let’s see how the market reacts. Technically and fundamentally, Aboitiz stocks are good bets. Thing is, they remain to be overbought. A healthy correction may push their prices higher.

        Comment by noob | November 8, 2010

  14. with good fundamentals and 30% increase, I think RCB will continue its uptrend.

    Comment by newbie | November 8, 2010 | Reply

  15. Guys, any idea on AGI’s target price? Thanks

    Comment by Shan | November 8, 2010 | Reply

  16. Guys,

    What do you think the effects of the bearish sentiment of the US Dollar would have on our own market? Considering that we have a substantial dollar remittances..

    Comment by wren | November 8, 2010 | Reply

    • get a broker. or an analyst. or an economist who trades. this ain’t a free world boi.

      Comment by soupy | November 8, 2010 | Reply

  17. What are your thoughts on ACR’s disclosure of earnings and future projects in Mindanao?

    Comment by Cathy | November 8, 2010 | Reply

    • GLO is profit oriented; SUN is cusotmer oriented
      it also reflects on hoe they deal with their subscribers

      Comment by Nik | November 9, 2010 | Reply

  18. Interesting how telcos share ideas to the media on the post paid segment. Glo, no.1 if basing on revenue, sun no. 1 in subscriber count but not revenue due to lower charges because it gives savings to its customers. If you are the customer, what do you make of it???

    Comment by alex | November 8, 2010 | Reply

    • if i had money right now, this will be the priority
      1. put some on nickel asia
      2. double dgtl
      3. double vll
      4. buy some pldt

      i have a good feeling about dgtl. it has now reached critical mass. next year will be very good for them earnings wise – i think.

      Comment by jasper | November 8, 2010 | Reply

  19. The key indicator you guys should be looking at is the net foreign selling which became positive for the first time in 2 months. Which means money is going out instead of in. There is a lot of uncertainty with regards to the new quantitative easing but the only certain thing is that it will increase inflation which means most foreign fund managers are taking profit to place them in commodities like oil and gold. The only real question is: how much money is gonna come out before it settles down?

    Comment by Mars | November 9, 2010 | Reply

  20. Nabuhayan ako ng loob sa CEB

    Comment by Nik | November 9, 2010 | Reply


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