Gus Cosio says so

Ideas on the Philippine Stock Market

IF

7:30 pm  Wednesday  17 November 2010

I believe a lot of people are running scared.  People with huge portfolios are seeking cover as extraneous factors have come to haunt our market.  Of course, what sparked the selling was profit taking on our shores.  The foreign markets only exacerbated the selling pressures.  Unfortunately, it looks like a short-term trend has begun and it does not look very good.

Honestly, I am still long but i have comfortable cash levels in my portfolio, and the stocks that I am holding have not yet gone to the loss region of my P&L except for SLI which I bought around 1.90 and CEB where my cost is 125.  The rest like DMC, ORE, EDC, DGTL, JGS, and PX are still above my cost.  I am not yet worried but I am convinced that some stocks are on their way to lower levels.  I reckon these will be the main blue chip issues like AEC, AC, ALI, TEL, BPI, JFC, MBT, BDO, SM, SMPH, FPH, and MER.  I think stocks with specific stories may be able to weather the selling storm much better because investors see them as special situations.  If I had these stocks, I will probably look to sell on bounces for these stocks.  Of course, that is easy to say because I was lucky enough to avoid them.  Actually, when the market started trading above 4000, I purposely shed my index shares.

I would like to comfort those who are nursing underwater positions.  If you are holding stocks that you are convinced about, the most you should do is to pare some of them down.  You do not have to sell all of the position on each stock, just enough to have cash for averaging down.  If you expect cash to come into your portfolio, there should be no cause to worry.  Domestic interest rates are just too low for stocks to do a dramatic slide down.  There is a lot of cash out there that is earning only 1.5% per annum in the bank or t-bills.  This gives the BSP some fodder to lower SDA rates from its present lofty levels without fear that these deposits will all flee.

At the end of the day, we should assess things in a forward-looking manner.  The question is “how do we see 2011 to be for the economy and for corporate profits?”  I think the economy should carry on going from the momentum gathered this year.  Furthermore, with infrastructure spending picking up next year, I see no reason for the economy to slow down.  We are even expecting exports to continue with its growth trajectory, after all the developed economies are starting to experience inventory build up already.  Some retailers in the U.S. are seeing a certain degree of come back by the average consumer.

At this point, I am reminded of the first lines of the poem “If” by Rudyard Kipling which goes:

“If you can keep your head when all about you
Are losing theirs and blaming it on you”

All I can say is, if we lose our head now, we lose our money as well.

Advertisements

November 17, 2010 - Posted by | Financial markets in Asia

66 Comments »

  1. Sir Gus,
    Nice meeting you Sir. I learn a lot today.

    Thanks a lot,
    ernie

    Comment by ernie | November 17, 2010 | Reply

    • Wow that’s great.. I myself missed the chance to go to the Forum/Discussion since it was already Fully Booked. But I guess next year again.

      Hopefully Sir Gus I will meet with you one day. I respect your ideas and concepts. More Power!

      Best Regards,

      Comment by Foreign Investor | November 18, 2010 | Reply

  2. Mr Cosio, what are your thoughts on LPZ and FOOD? Looking forward to your thoughts sir.

    Comment by Scared Investor | November 17, 2010 | Reply

    • Scared Investor,
      I think LPZ should be okay because the market will be looking for cheap second liners.

      Comment by Gus Cosio | November 19, 2010 | Reply

  3. Thanks for the insight. I only have one position left, SCC. Honestly I’m not sure where it’s going, it made a huge leap this year.

    Comment by Dez | November 17, 2010 | Reply

  4. S&P just UPGRADED our rating. Moody’s expected to follow suit. Most BLUE chips have disclosed achieving targets to higher than expected earnings. Is this “short term” downtrend more technically motivated? Thanks as always sir Gus.

    Comment by Jojo | November 17, 2010 | Reply

  5. Nice poem!

    Comment by abitrade | November 17, 2010 | Reply

  6. Dez,
    SCC in my opinion will probably just consolidate before it continue it’s up trend towards P200 and maybe P250 by next year. Worst thing will happen is it goes back to P154 which is the gap. But that is just wishful thinking. Scc has a bright future ahead with the rehab of calaca and the brownfield power. Power sector plays still has a lot of room to grow. For me this is a buy on dips. If you have addtl cash ave down or just Hold. Hope this help.

    Comment by Richie lim | November 17, 2010 | Reply

  7. Thanks, Richie! love your name, same as my first love’s. hehe…

    Comment by Dez | November 17, 2010 | Reply

  8. Hi Gus,

    Sorry this is off-topic. I’d like to know how I can open SALEF FAMI account through the First Metro Sec website. I am now in Lisbon, Portugal. I’ve been sending emails to FAMI but haven’t gotten any reply.

    Best regards,
    Nestor

    Comment by Nestor | November 17, 2010 | Reply

    • Hi Nestor,

      FAMI has a different website. You can check the procedure and download the forms required on this website.
      http://www.fami.com.ph/?page_id=308

      Unfortunately, you have to personally go to their office to open an account. Not sure if they can consider a proxy to open an account on your behalf.

      Fortunately, it’s giving me more than 30% return when I started my investment last April 2010. I could have invested some more if I have enough cash that time. I diversified my investments with stocks, and real estate as well. 🙂

      P.S. FAMI so far is the leading mutual fund company in the Pi. Though I also invested in ATR which gives me a good return. FAMI is still the better… I can’t say it’s the best. Who knows? The market is very unpredictable… 🙂

      Goodluck on your new investment.

      Best of Luck,
      PoGGs

      Comment by PoGGs | November 17, 2010 | Reply

    • visit fami.com.ph, click on the tab “Investment Procedure” You can download the prospectus & forms

      Comment by claude | November 18, 2010 | Reply

    • Nestor,
      can you go to the FAMI site and send your email address directly to us. We’ll help you out.

      Comment by Gus Cosio | November 19, 2010 | Reply

      • Gus, I sent the email already. Thanks for all the replies, everyone.

        Comment by Nestor | November 19, 2010

  9. Nestor,
    You would like to visit this page http://fami.com.ph/?page_id=308 download the important forms there, fill-it up then fax it. Then you should deposit your cash to any of the account given on that link.

    Then fax or email the accomplished forms and deposit/payment slip to fax no.: (632)816-0467 or email: FAMI@firstmetro.com.ph.

    Goodluck. Now is the best time to invest, habang mababa value ng navps nila heheehe. I wish I could add more soon next month

    Regards,
    Sam

    Comment by Scary Investor | November 17, 2010 | Reply

  10. Sir Gus,

    I would like to share my insights specially to your readers on value investing. I’ve learned quite a bit on reading the financial reports of companies.

    Stock in Focus: First Philippine Holdings Corp. (FPH)
    Financial ratios (as of 9/30/2010):
    ROE = 37.7% (including one time gain from MER sale)
    DTE (long term) = 0.66
    Current Ratio = 3.55
    Net Profit Margin = 9.5%
    EPS = P42.410 (P8.07 w/o one time gain from MER sale)
    P/E Ratio = 1.45x (7.63x w/o one time gain from MER sale)
    Book Value per share = P129.48

    Current market price = P61.60
    Fair value @ 15x P/E for 9months 2010 = 8.07 * 15 = P121.05
    Fair value @ 15x P/E @ 10 pesos EPS forecast for full year 2010 = P150

    Currently, FPH trades at 52% discount with regards to book value, and at a 59% discount @ 15x P/E.

    I’m quite sure if Warren Buffett reads FPH’s financial statements, he will definitely buy this.

    Comment by Neo | November 17, 2010 | Reply

    • I forgot to mention the 3.24% dividend yield FPH has given this year (2 pesos divided by current price of 61.6 pesos).

      Comment by Neo | November 17, 2010 | Reply

    • Ben Graham will buy this. but it is not automatic that warren will.

      According to theory, Warren differs from a pure value investor in that he places an importance on management. i.e. One of his more famous motto: It is far better to buy a wonderful company at a fair price, than to buy a fair company at a wonderful price.

      Though I don’t know why the world at large seems to be avoiding FPH, but perhaps the meralco failure is still being felt even now.

      Comment by jasper | November 17, 2010 | Reply

      • There is also the Bayantel,Benpres thing. Im still amazed that right after FPH let go of MER,increase in rates were after several months only granted. FPH could have benefited tremendously there, after all it planted the seed.

        Going forward, what are the prospects for FPH.ITs operating companies are mainly FGEN, ABS and EDC.

        thanks

        Comment by alex | November 18, 2010

      • Alex,
        My best bet in your list is EDC because it is the purest play on power generation which is the surest thing between now and 2014. In this period, power supply of the country has to grow significantly or else we go back to brown outs. This implies that companies like EDC can easily reap revenues and profits.

        Comment by Gus Cosio | November 18, 2010

    • hey congrats on your being a value investor..we need more value investors to stabilize our markets 🙂

      as for FPH, yes its one of the most undervalued stocks out there..its one of the first i noticed. it was a good position to buy when it was at its 70s, even better now that its in its 60s.

      i dont know why this stock isn’t moving. probably because there have no announcements of new projects. i think they aspire to be in the position to win one of government contracts in the Real Estate Investment Trust programs. they also plan to expand their investment in the energy sector. but they have no definite announcement yet. maybe thats why this stock isn’t moving yet. but its definitely in a good position to buy now, just dont expect to turn around for months or until they win another big contract.

      now with FPH being one of the lopez companies, i checked out their other businesses and i found LPZ to be undervalued too (check the numbers yourself if you dont want to take my word for it). in fact, LPZ also owns part of FPH, i think FPH is its channel for the energy sector. LPZ is more diversified too where it has businesses in media and communication.

      you can invest in both LPZ and FPH if you’re comfortable with it. but if you invest in LPZ you will be indirectly invested in FPH too.

      your call.. good luck!

      but i’d like to know what gus thinks about FPH..

      Comment by cliffhanger | November 18, 2010 | Reply

      • Hey cliff, w/c one is more undervalued FPH or LPZ? My source says it’s LPZ, what do you think? 😀

        Comment by KennyV | November 18, 2010

    • Thanks for this Neo. I am sure others who follow FPH will find this encouraging. or the coming weeks, have a look at EDC which looks to be a good trade.

      Comment by Gus Cosio | November 21, 2010 | Reply

  11. Hello Sir Gus,

    May I know what your take is on IP and its coming IPO on IP Converge Data? Do you personally see it going above the current price despite all that is happening? (Averaged down to 1.72) I’m holding it along with ORE, DMC and DGTL.

    God bless!

    Comment by Dennis | November 17, 2010 | Reply

    • Dennis,
      I find it difficult to trade small cap stocks. I also find BPO stocks very difficult to value.

      Comment by Gus Cosio | November 19, 2010 | Reply

  12. Lopez Stocks is over Sold right now…AGI is overbought and very expensive.Avoid AGI…Buy lopez stocks..

    Comment by Ray | November 17, 2010 | Reply

    • Hi sir,

      Whats your advice on MPI? Ive been taking losses for the past days… Although they posted profits, it seems their price continued to slide

      Comment by Ria | November 18, 2010 | Reply

      • I’ve been following AGI for quite some time now and their travellers base is really big. Its operations aren’t 100% good to go yet but they are already posting big profits. They are also planning to expand which if successful, can reap in more big bucks

        Comment by Ria | November 18, 2010

      • Ria,
        MPI is down because the market is down. If you believe in a stock, you should not be worried when you see movements as these. Recall that this stock came from 2.20. If you have no faith in your decision to buy it, you should not have bought it in the first place. You cannot invest in stocks and not have any conviction. Otherwise, you are not investin but merely making bets. When you make bets, are you not prepared to lose? Why worry, then?

        Comment by Gus Cosio | November 18, 2010

      • I’ll load up on MPI if it wasnt for the fact that its over my allocation limit already (>30% of my portfolio). But I’m considering violating my own rule and just go crazy with buying MPI.

        Consider all the good news that it has. i.e. MER is the most profitable phil company for the year according to biznews(i think). They also just entered MRT3. The hospitals are starting to contribute. etc.. lots and lots of good news.

        As for the stock: Prices can go opposite the fundamentals, but sooner or later it will align with it – peter lynch.

        Comment by jasper | November 19, 2010

  13. Sir Gus,

    Your blog is a good read, been following on it lately.

    Just want to know your view on MPI? I like this stock and the businesses its in but its been sliding down lately? Should i still hold on to it?

    Thanks

    Comment by Ken | November 17, 2010 | Reply

    • I think with the Governments PPP program, I think MPI still has a lot to move…

      Comment by jopard | November 18, 2010 | Reply

    • Ken,
      MPI is a stock you can hold for the next 6 months without any worries, even if the stock price goes down. These guys are in monopoly like businesses – power, water, expressways. These businesses are not only hugely profitbale, they will surely grow as the economy grows. Please take a close look at MPI’s disclosures.

      Comment by Gus Cosio | November 18, 2010 | Reply

  14. Hi Gus,
    Nice point about the dividend. My investment strategy is purchasing stocks with a high divend-to-stock price ratio. Stocks with dividend ratios higher than the current interest rate are my choice buys. Whether in good times or in bad, I get a higher “interest” payout (4-6%) from my stock positions as compared to present time deposits (2-4%).
    Some stocks that I am currently holding:
    UBP — Dividend – 2.2, Price Brought – 40 — D/PB = 4.95% incl. 10% tax deduction.
    SMB — D – 0.55(total in a year), PB – 10.5 — D/PB = 4.71% incl. 10% tax deduction
    FMIC — D – 2.65(total in a year), PB – 35 — D/PB = 6.81% incl. 10% tax deduction

    Although, it should be noted that the interest rates of old ROP’s (6-9%) are higher than most dividend ratios. However, these ROP’s are currently priced above premium. On this note, would like to share that news that UCPB is currently offering a 6.25% (net) Long Term Negotiable Certificate of Deposit. This deposit functions like a bond and is insured by the PDIC up to 500k. Minimum entry amount is Php 50k. Additional investment is in increments of 1k. Application deadline is on the 19th (I’m not sure with the date). Please note that I am not in any way connected with UCPB. The LTNCD was recently offered to me by a manager-friend and I would like to share this to everyone in your blog.
    Keep up the good work Gus.

    Comment by Vince | November 17, 2010 | Reply

    • I tried this once using CEU and SHNG. But right now when there are so much potential i think its the wrong strategy to pursue.

      I mean, why would you wait a year for 5% when something like AEV climbed 6% just today.

      But i’m thinking of buying TEL just for the dividends. It should give you close to 9%. A very nice figure.

      Comment by jasper | November 19, 2010 | Reply

  15. Just don’t forget that the US Federal Reserve is still out there providing liquidity every day. As I said in Sir Gus’ previous blog the problem isn’t a massive sell-off, the problem is the lack of risk-appetite (no one wants to buy and take a risk). All it takes is one good news to spark the emerging markets again. Once the dollar shows a steady trend downward, money should flow back to emerging markets. At the very least I’m predicting a good day for the PSE on Thursday. 🙂

    Comment by Mars | November 17, 2010 | Reply

    • Yeah. and not everyone buys on “good news” nowadays anymore.. we have to risk some to RAMP IT UP!! :))

      Comment by Warrior Princess | November 18, 2010 | Reply

  16. “… we lose our head now, we lose our money as well.” I completely agree. It`s human nature to panic when one’s money is decreasing, that is why having comfortable cash levels in uncertain times is very important. It will allow one to continue looking at the market with rational perspective and benefit from exceptional opportunity that it presents.

    Comment by Chris M. | November 17, 2010 | Reply

  17. All i can say is, thank you Sir Gus for your insight & wondeful message, hope PSE recovers at the soonest time. More Power & God Bless to All!!

    Comment by Blogspot | November 18, 2010 | Reply

  18. Sir Gus, Is it possible that we have peaked already for 2010? Am a bit afraid coz the correction happened before announcement of some companies and yet when these companies announced good results/earnings the correction went on. Am thinking what is there to push the stocks up between now and december?

    Comment by jovy | November 18, 2010 | Reply

  19. I’m not soliciting but i would like to reverse my stance and reiterate a BUY on SLI. This for me has already found the bottom @ 1.69. This has a lot of room for the up side come dec 2010. Good luck to all holders.

    Comment by richie lim | November 18, 2010 | Reply

    • been buying SLI for 2 straight days now 🙂

      Comment by sdrobob | November 18, 2010 | Reply

      • I’m waiting to bottom fish this one tomorrow. 1.7-1.75 levels

        Comment by Foreign Investor | November 18, 2010

  20. hi gus, would meralco@180 still be a good buy? Its nearing it now (186.9 currently)

    Comment by jasper | November 18, 2010 | Reply

    • Jasper,
      If MER goes to 180, it is a screaming buy. Remember, this company sells electricity to a franchise are that accounts for half of the country’s GDP and I’m of the opinion that GDP will continue to sustain the 7% growth figure all the way through 2011.

      Comment by Gus Cosio | November 18, 2010 | Reply

  21. Great Sir Gus! Bought Meralco at 187 this morning. Quite comfortable with this price. Added DMC and MPI as well. More power to you, Sir Gus!

    Comment by Shan | November 18, 2010 | Reply

  22. @ Sir Gus,

    I have bought and placed most of my resources @ EDC right before it went down to 5.33, just want to express my appreciation to this forum because insights here helped me “kept my head” during the downtimes now EDC is climbing up again, it pays to have help in looking @ things objectively…

    Comment by jofoler | November 18, 2010 | Reply

  23. SLI will be having a special stock holder’s meeting on Dec. 10,2010. There’s probably talks on the secondary offering for next year. If they don’t talk about it on that day, I’d probably say the stock will collapse. But I am confident they will talk about that issue. I bought 1.72 today. Any insight on SLI sir gus?

    Comment by richie lim | November 18, 2010 | Reply

  24. Hi Sir Gus, what’s your take on LC?

    Comment by Newbie_Trader | November 18, 2010 | Reply

  25. Well there’s some really good news in the Asian front. One the biggest factor that’s killing the market mood right now is China’s 4.4% inflation which the market believes is a sign that China will slow down its growth. Well people keep forgetting that China is a socialist country, so instead of doing the capitalist solution by hiking interest rates, they went the socialist route: price controls. Which ironically is good news for capitalists.

    So if you’re still waiting with your wads of cash, I suggest you wade in soon. I predict PSE to challenge 4200 on Friday. 🙂

    Comment by Mars | November 18, 2010 | Reply

    • my opinion is that china is less socialist and it is probably more apt to refer to them as a controlled capitalist country. on the other hand others are trying to emulate them, such as cuba so it seems the style has gained a few admirers.

      Comment by ed | November 19, 2010 | Reply

      • Well one could argue that “controlled” capitalism is in fact socialism. Remember you have to differentiate socialism from communism. Market socialism still retains the concept of capital accumulation but rejects the notion of a free market but instead embraces heavy regulation for the good of the public.

        On another note, the PSE did challenge 4200 but looks like it’s gonna lose by a few points. It would have been nicer if it ended above it so that it becomes a support level instead of a resistance. The dollar has stopped going down unfortunately. Monday will be quite unpredictable.

        Comment by Mars | November 19, 2010

    • Looks like I spoke too soon hehe. It ended at 4203. 🙂

      Comment by Mars | November 19, 2010 | Reply

    • you hit it right bro 🙂

      Comment by sdrobob | November 19, 2010 | Reply

      • I don’t like it though. The global market this month is starting to mimic the August trend (of course the bright spot to that is it may lead to a similar September upsurge in December). Which means it might be a bad week next week for the global market. The PSE actually did well in August but the thing is, in August the PSE wasn’t moving in lockstep with the global market. That’s not the case right now. The PSE’s correlation with say the EAFE index in the last 3 months is very high.

        My advice is don’t rely on a general uptrend next week despite a good last 2 days. Continue monitoring the support and resistance levels of your stocks and decide from that. My current view is the rest of November won’t be pretty but December will be a totally different month. 🙂

        Comment by Mars | November 19, 2010

  26. Remember “Scared money will not make you rich”

    Comment by gabe rapatan | November 18, 2010 | Reply

  27. HI Sir GUs

    Any thoughts about the recent moves of SMC and SMB. They are not even noticeable 3 or one months ago and SMC was even driven out of the index.

    Comment by Olive | November 19, 2010 | Reply

    • Same question here, SMB was just around 9.70 last month, now it already hit 17. How far can it go?

      Comment by alex_ay | November 19, 2010 | Reply

      • smc and smb have their respective good news see their disclosure..besides, notice that these stocks almost havent move enough for the past years after the crisis compare with its peers. it is a good example of a stocks that catches up with the trend and their catalyst are the news they have now. if you could find stocks similar with these keep it for it will pay you high reward.

        Comment by richard | November 19, 2010

      • Some people say that when times are good, people drink to celebrate. When times are bad, people drink to forget their problems

        Comment by rodimus | November 20, 2010

  28. woohoo go ORE

    Comment by Cholo | November 19, 2010 | Reply

    • I’m trying to recall if ORE’s scheduled nickel shipment is definite or is still a possibility… i remember seeing either word in our past discussions…

      Comment by James | November 19, 2010 | Reply

  29. ORE.. 8%.. nice.. let’s buy more.. lolz

    Comment by marketbeginner | November 19, 2010 | Reply

  30. SIR GUS,
    DO YOU HAVE IDEA ABOUT RFM ? CLOSING IS 2.03. UP TO WHAT PRICE IT WILL TAKE ? THANKS AND GOD BLESS.

    Comment by AL | November 21, 2010 | Reply

  31. Hi sir gus!
    What is your take on FLI?
    Among all the property stocks, FLI seems to be the only one who has a higher eps this year compared to last year.

    Comment by ricky | November 21, 2010 | Reply

    • Ricky,
      I think FLI would be a good buy today.

      Comment by Gus Cosio | November 22, 2010 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: