Gus Cosio says so

Ideas on the Philippine Stock Market

Square and Balanced

9:20 am  Monday 13 December 2010

I am sure that many are biting their nails again after seeing the market plunge as much as 83.1 points last Friday.  Fortunately, it partially recovered near the close to end the day at minus 73.67 points.  Nevertheless, this kind of plunge is a cause for worry.  Technically speaking, we would have had a head and shoulders on the PSEi had it not closed up on Dec. 1 and followed through very strongly on Dec.2.  If we go by purely technical developments, i.e. from the sentiment gleaned from the behavior of the index, we should be out of the woods already because the index traded above the right shoulder of the head and shoulders formation.  Nevertheless, we will not really be confidently sure until we see a convincing support above 3953 of the index.

There will really be some risk reward propositions showing up in the coming days and the potential dampener would be the thinness of the market as we approach the Christmas holidays and the year-end.  I would suggest that people be swayed less by sentiment or momentum.  Rather, one should look at reasonable prices given sound forecasts.  For example, the large cap stocks which have very stable markets should be seen as carrying out their core revenue guidance.  The classic example is TEL whose revenue base is surely to be within the 40 to 45 billion range.  A company of this size tend to maintain its critical mass unless strong economic forces go against it.  Arguably, MER should be in the same boat being the power distributor to the region that produces 49% of the country’s GDP.

Other examples are the big banks, namely, MBT, BPI and BDO.  They have very stable balance sheets so core revenues will likely be preserved.  The same can be said for smaller but well-managed banks like SECB and UBP.  It can get tricky when it comes to property shares since the market is very much dependent on how well the economy goes.  So far, the expectation is for the economy to stay on its growth course going into 2011.  It is even likely to pick up steam when more infrastructure projects come into stream in the second half of 2011.  We can say then that property should not do so badly and will be a function of how well they market and deliver their projects.  For that reason, I am not positive on a stock like MEG because of many dissatisfied home-buyers.  I also heard that their strong OFW sales of the past has started to fizzle out.  I would, therefore, try to focus more  on developers with very strong domestic networks such as FLI, VLL and even SLI.  Of course, if it were not relatively expensive, I will even go for ALI.

Since I have a positive view on infrastructure, I will also be happy to buy DMC, MPI and even AEV if it goes on an extended correction.  On a technical note, I think these stocks will tend to trend downwards over the next few days.  While I like the fundamentals on MPI, it looks to me that this stock will trade closer to 3.20 over the succeeding days.  Similarly, DMC and AEV could ease up a shade more although I reckon lower prices on these stocks could meet some conviction buying.

My thoughts on the market for the coming days is heavily influenced by seasonal behavior of portfolio managers.  They will tend to be squaring their books which means taking profits and re-balancing portfolio weights.  As a market call. I would venture to speculate that we will trade in a range between 4000 and 4250.  It is probably a good time to put on a counter-intuitive thinking.  It will also be a time to train your nerves for trading conviction.

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

28 Comments »

  1. sir,

    what are your thoughts on SLI vs AGI, and AP?

    thanks!

    Comment by yanyan | December 13, 2010 | Reply

  2. Sir Gus,

    What’s your take on JGS issuing 2B shares for expansion? While FPH and AC buy back shares, this one is selling to expand.

    Thanks

    Comment by alex | December 13, 2010 | Reply

    • JGS looks to be a better long term buy while AC and FPH would be excellent short term buys.

      Comment by Gus Cosio | December 13, 2010 | Reply

  3. Sir Gus, I hope you are wrong about MPI. I just bought this at 3.66. 😦

    Comment by Seth | December 13, 2010 | Reply

    • Seth,
      It is not to contend whether I am right or wrong because sometimes I am right and other times I am wrong about market timing. What is important is what one should do when you are wrong in timing your buy. If you are a believer in MPI as Iam, you should wait until the stock stabilizes which I venture to say is around 3.20; try to average down at this level.

      Comment by Gus Cosio | December 13, 2010 | Reply

      • Thanks for the sound advise. Although averaging down is against my trading rule, I will make an exception for this stock. I believe this stock, along with ORE and VLL, will shine this coming 2011 just as AP and DMC have in 2010.

        Comment by Seth | December 13, 2010

      • hello seth. may I ask what’s is wrong with averaging down because that is what i usually do when i was able to buy stocks at a high price and it goes down during market correction. newbie in stocks here. TIA

        Comment by RmR | December 13, 2010

    • Hi RMR. Averaging down is not essentially bad, but you would not want to buy a stock when it is losing since the downside risk is higher. As a rule, I only buy a stock when it is winning. I bought MPI during it’s ” short break out” last week thinking that there is no way but up. Apparently, I was wrong. 😦

      Comment by Seth | December 13, 2010 | Reply

  4. Sir Gus,

    I have DMC and AGI as my core. Have been accumulating MER and MPI as well. I believe I have great “Pacmans” in my portfolio. No fear for thin market volume. 🙂

    Comment by Shan | December 13, 2010 | Reply

    • Great attitude, Shan

      Comment by Gus Cosio | December 13, 2010 | Reply

  5. Hi Gus.. what is the Christmas rally (?) someone referred to on ANC today? I have been bitten by the stock bug and am currently holding 21 stocks, all discussed in your articles. Am averaging down on some but still ok on others. I am hoping stock prices will go up before Christmas so that I can take profit. If the rally (?) happens is it a good strategy to sell all, take profit and start over in 2011? Thanks.

    Comment by newbie | December 13, 2010 | Reply

    • I have a decent profit on majority of my 10 issues. I believe getting out of the “rally” really depends on how much you got in. Besides, if you think the issues you have on hand are still potentials in 2011, then why unload? i don’t know if Sir Gus agrees on this. My two cents though.

      Comment by Shan | December 13, 2010 | Reply

    • 21 stocks? That’s a lot. Why not make it 31 na, yung buong index na.

      Comment by A.J. | December 13, 2010 | Reply

    • If you have 21 stocks, take profits on 2/3 of your portfolio. Then determine which 10 stocks would you prefer to take into position in 1Q 2011. It is easier to manage a portfolio of 10 stocks or less.

      Comment by Gus Cosio | December 13, 2010 | Reply

    • wow!21 stocks? that’s a LOT! how were you able to monitor them all at the same time? you’re a big time NEWBIE investor huh. i’m aiming for 15 stocks in my portfolio but that will still take some time, no cash for that. pwede siguro pag tig-1 board lot lang kukunin ko. kaya lang ung broker ko ang mas kikita kesa sa akin…

      Comment by RmR | December 13, 2010 | Reply

      • I used to have 10 holdings but now I only have 4… DMC, AGI, MPI & JGS. Way easier to handle 🙂

        Comment by James | December 13, 2010

  6. Many are Bearish Time to Buy tomorrow…Most stocks are cheap right now…

    Comment by Time2Buy | December 13, 2010 | Reply

  7. Hello Gus,

    I see you’ve mentioned UBP again today, was wondering if you can see UBP turning out to be another PNB in the near future(2011 or 2012?) Thanks!

    Norman

    Comment by Norman Go | December 13, 2010 | Reply

    • Norman,
      There is no significant undervaluation for UBP that I see today. However, given that banks should do well in 2011, UBP should be in a favorable position given its parent AEV which is well placed in the infrastructure game.

      Comment by Gus Cosio | December 13, 2010 | Reply

  8. MEG is for next year. actually, looking for FLI as my prospect.

    Comment by marketbeginner | December 13, 2010 | Reply

    • FLI is a stock that can fly soon.

      Comment by Gus Cosio | December 13, 2010 | Reply

  9. Hi Sir Gus,

    What do you think is the cause of MBT’s steep drop today?

    I have sold my position in VLL and bought MBT at 67.40.

    I also want to avail of the SRO, due to the bank’s rosy prospects.

    Comment by Neo | December 13, 2010 | Reply

    • Neo,
      I think your did well. It is time to accumulate MBT for next year. It may not come any cheaper.

      Comment by Gus Cosio | December 13, 2010 | Reply

      • i added more mbt this morning for the SRO next year. Planning to add more tomorrow if it goes down more.

        Comment by mon | December 13, 2010

  10. hi sir,

    what are your thoughts on SLI dipping down? its at 1.71 now, and very close to 1.69.

    I also believe AGI is a good buy now, 11.8-12 range, money will come in as soon as they finish the whole project of resorts world.

    VLL is an undervalued stock in my opinion, good for long term

    Comment by yanyan | December 13, 2010 | Reply

  11. What happened po to CEB? Why is it like that?

    Comment by Nik | December 13, 2010 | Reply

    • People think AirAsia’s increased frequency from the Philippines will hurt CEB. I feel otherwise particularly because AirAsia has been in talks with Clark Airport to make it a hub airport. I think it can only raise volume for CEB particularly the onward connections to other destinations in the Philippines.

      Comment by Gus Cosio | December 13, 2010 | Reply

  12. the comment on the many unhappy buyers of meg is right on the money! i wish i had listened to friends when they told me not to buy a meg project but now im still dealing with all the headaches brought about by that mistake of buying a megaworld property. i think more people are starting to learn about how bad their projects are and they might have more difficulty selling in the future.

    Comment by rex | December 15, 2010 | Reply


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