Gus Cosio says so

Ideas on the Philippine Stock Market

Viva la Portugal!

9:40am  Thursday  13 January 2011

When the market surges 39 points in the day then gives back all but 4 points in the end, it does not speak well of what happened.  It looks to me that people are still looking to get out.  I detected a lot of foreign selling in erstwhile favorite AEV and AP.  I suspect that the selling is not yet over.  I sensed some weak hands shedding some DMC shares above 34.  These things tell me that while we are seeing some bottom fishing going on, the big buying wave that will push us through this phase of weakness is not yet at hand.  We may have to wait a few days more in spite of the fact that anxieties over Europe has waned.  Portugal’s debt auction was fully subscribed although Bill Gross, head of global fund fixed income portfolio managers PIMCO, was not convinced.  He says that most private fund managers avoided the auction and it was the various governments that supported the Portugal issue.  nevertheless, Wall Street together with the rest of the global equities market breathed a sigh of relief and took stock indices comfortably higher.

Back in our shores, what looks to be relentless are the selling of foreign fund managers.  The mains motivation appears to be suspicions of uncontrolled inflation in China, India and Indonesia.  Unfortunately, the small Philippine market cannot avoid being rocked in the wake of the selling in the neighborhood.  While it may not make sense to locals because valuations of Philippine stocks are reasonable, foreign funds have far different considerations compared to us mere mortals.

Nevertheless, even if selling continues in stocks like AEV, AP and DMC, I think prices for these stocks are already reasonable.  They may slip somewhat for a few more days, but in my opinion, valuations will eventually prevail.  The financial sector was also bruised pretty badly, but I do not see MBT, BPI, BDO and even SECB being battered more than they have been over the past few days.  MBT with its SRO should be elevating earnings level this year.  Remember that among the banks, MBT has the edge in expertise on infrastructure and project finance which should be a good theme for this year.

Having mentioned infrastructure, MPI should be cheap at this level.  In early 2010, I tagged MPI to be worth 4 by year’s end.  For 2011, given its pipeline of infrastructure involvement plus the stellar performance of Meralco and Maynilad helped by lower interest rates and financing cost, a 25% increase in earnings should not be difficult.  MER is similarly benefitting from the MPI story.  I gather that MPI is protecting its control in MER which appears to be the reason for the run up in prices.

There are a lot of cheap stocks out there.  One just have to look before you leap.  Going blindly for a stock never really made sure money for anyone.  Never ignore the fundamentals especially in a volatile environment such as ours.


January 13, 2011 - Posted by | Financial markets in Asia


  1. We were just talking last nite about Greece & Portugal and this morning saw a green Dow & positive Portugal!


    Comment by nikmatik | January 13, 2011 | Reply

  2. “MBT with its SRO should be elevating earnings level this year. Remember that among the banks, MBT has the edge in expertise on infrastructure and project finance which should be a good theme for this year.”

    I think this answers my question in your previous blog entry. Thanks a lot!

    Comment by Neo | January 13, 2011 | Reply

  3. I attended your talk last night, but didn’t get your answer on the question of why EDC has not risen as much as AP. May I ask again?

    I noticed that EDC, unlike AP, has more unusual gain and losses in their income statement, indicating that there may be many expenses or losses they are not recognizing in same accounting period.

    Comment by Andrew | January 13, 2011 | Reply

    • andrew,
      First of all stocks do not move in equal degree of each other. There are a lot of subjective views that investors impute on a stock’s value. AP went up more than five fold over the last year and a half. EDC, on the other hand, had not be as strong and earning were downgraded due to maintenance work being done in one of its generating plants. Now, people are looking at other factors for EDC such as the prospective growth of geothermal capacity in the region particularly Indonesia where EDC has a joint venture in the making supposedly.

      Comment by Gus Cosio | January 15, 2011 | Reply

    • In terms as earnings, AP is bigger than EDC considering they already have distribution side of the business such as VECO (Cebu), Davao Light (Davao), and in the Subic- San Fernando area. MERALCO has NCR but AP has the Cebu Metropolitan area

      Comment by jopard | January 15, 2011 | Reply

      • Ap’s stock price over the past year just reflected their spectacular earnings growth over the same period -from php2b to php20b in 2010. EDC did match that explosive growth and is not forecast to do so in the same degree. EDC has been a disappointment as far as management is concerned hence the discount. A glaring example is how their sister company handled the makati oil leak.

        Comment by Cj ch | January 15, 2011

      • I read somewhere in FM website that AP income in 2010 was exceptional due to high WESM prices of around P12 during the La Nina phenomenom. Recently, average rate of WESM has gone down to P5. Am not very exact of the numbers but there is doubt that AP can replicate its 2010 income now that La Nina is prevailing.

        Comment by adan | January 15, 2011

      • I meant to say that EDC did not match the earnings growth of AP.

        Comment by Cj ch | January 15, 2011

      • correction: it was El Nino in 2010.

        Comment by adan | January 15, 2011

  4. I attended your talk last night, but didn’t get your answer on the question of why EDC has not risen as much as AP. May I ask again?

    I noticed that EDC, unlike AP, has more unusual gain and losses in their income statement, indicating that there may be many expenses or losses they are not recognizing in same accounting period.

    Comment by Andrew M. | January 13, 2011 | Reply

  5. I was able to attend the seminar last night and its really nice to have a good picture of the market for 2011. I just wanted to ask your outlook for IMI stocks this year?

    Comment by cathyeresera | January 13, 2011 | Reply

  6. Im expecting a Big Rally tomorrow.

    Comment by Lito | January 13, 2011 | Reply

    • What’s your basis Lito?

      Comment by jopard | January 13, 2011 | Reply

    • or Sell on Rally… i guess 🙂

      Comment by 100K_Pinoy_Fund | January 13, 2011 | Reply

  7. DMC, AEV, AP, MER, BPI etc etc… the guru mentioned so many stocks and not even one of them is in my portfolio. this shows why he is up there and i’m down here. haha!
    still learning… dami pa dapat matutunan talaga.

    Comment by RmR | January 13, 2011 | Reply

    • It doesn’t matter if the guru’s holdings are in your portfolio or not. What matters is that you did your research on them. If we just pick stocks based on what other people say, then we are not really investing but just purely gambling.

      Comment by John | January 13, 2011 | Reply

      • good point john

        Comment by cliffhanger | January 14, 2011

      • thanks bro.

        Comment by RmR | January 14, 2011

      • well said, john.
        remember, not all of us have the same portfolio objectives nor risk threshold. i for one am not averse to taking my losses ven if it is large for as long as i deploy the equivalent in a stock that i foresee to do better. that the advantage of marking to market every day. I put my position in a portfolio page and it is automatically price updated. What I am concerned is the total value of my portfolio rather than the loss or gain on each stock.

        Comment by Gus Cosio | January 15, 2011

    • but.. bakit nga ba? why is it that none of those stocks are in your portfolio? When gus mentions a particular stock he likes, you owe it to yourself to take a look you know.. you might be surprised by the result.

      Gus seems to favor stocks with institutional following. Also, the bigger the companies, the better. i.e. Favor MBT than RCB, etc.

      Comment by jasper | January 14, 2011 | Reply

      • one factor why I don’t have guru’s recommendation in my small portfolio is that I have limited funds for buying. And when I do have the cash already, his recommendations were already “too high” for me to enter.
        thanks for sharing your ideas guys. appreciate them…

        Comment by RmR | January 15, 2011

  8. Gday Gus,

    What’s your take on ICT, URC ?

    Thanks and have a nice day.

    Comment by marc | January 13, 2011 | Reply

    • marc,
      I think ICT is fully valued. It derives value from the outlook on trade. URC is fairly valued and earnings are expected to grow due to higher consumer spending next year. i prefer URC over ICT. There are times that movements in ICT cannot be explained.

      Comment by Gus Cosio | January 15, 2011 | Reply

  9. Thanks for the seminar Gus! I thought you’re not tall.lolz your speech is very informative. Thanks to Sandy too!

    Comment by marketbeginner | January 13, 2011 | Reply

  10. any thoughts on smph?

    Comment by rodimus | January 13, 2011 | Reply

    • rodimus,
      SMPH is expensive relative to its peers. That does not mean that it will not go up though because some investors buy expensive stocks because of certainty of earnings. That was the case for ALI for a long time. One other example is MER, expensive in terms of PE but earnings are guaranteed.

      Comment by Gus Cosio | January 15, 2011 | Reply

  11. VIVA! OLLA!

    Comment by 100K_Pinoy_Fund | January 13, 2011 | Reply

  12. What is your thoughts on LND? going UP since the rumored acquisition of AGI. what can you say bout its fundamentals vs current market value after the acquisition? TIA!!

    Comment by Blogspot | January 13, 2011 | Reply

  13. Sir Gus, do you still have VLL? What is you target price for this stock?


    Comment by Jolly | January 13, 2011 | Reply

    • yes, Jolly.
      I own quite a bit personally. I am still accumulating more because I am convinced that the stock should be worth more than 4. At today’s closing price, I see it to be trading only 6 times 2011 earnings, i.e. PE of 6, and price to book of only 0.50 based on my view of what their final 2010 profits will show. In short, I think for the value turnover on this stock, it should trade at least at 4 pesos sometime in 1Q2011. Just remember that this is a personal conviction. You must look for reasons contrary reasons so as to convince yourself that my opinion is worth accepting.

      Comment by Gus Cosio | January 15, 2011 | Reply

  14. Sir Gus, I read somewhere that you have another seminar on Feb 2. I am interested. How would I join?

    Comment by Nel | January 13, 2011 | Reply

    • Nel,
      please go to and check out the details. Thanks.

      Comment by Gus Cosio | January 15, 2011 | Reply

    • nel,
      go to for details.

      Comment by Gus Cosio | January 15, 2011 | Reply

  15. Sir Gus,

    How often to you book profit or loss in FAMI’s Mutual Fund say Balance Fund? Is it monhtly, quarterly, etc?

    BTW your seminar yesterday is very reassuring for the next few years especially the macros. It really helps me understand and evaluate the outlook for the near future in relation to my investments decision.

    Comment by Ralph | January 13, 2011 | Reply

    • Ralph,

      My guess is daily as NAV is computed as marked-to-market.

      Comment by Raymond | January 13, 2011 | Reply

    • ralph,
      we mark-to-market daily; so to speak, we take our losses or profits on a day-to-day basis. I have the same attitude in my personal portfolio.

      Comment by Gus Cosio | January 15, 2011 | Reply

      • Sir Gus,

        What I’m trying to understand or find out is if in the Balance Fund, Fami sells position at a certain time when the price of a particular stock is at its high and buy back when at its low without changing the portfollio composition similar sometimes to trading our own personnal portfollios.

        Comment by Ralph | January 15, 2011

  16. my psoitions and cost average = mpi 5, meralco 225, sli 1.90. meg 2.40, fli 1.35, edc 6.10, nikl 18.60, ore 3.90, dmc 34.10, jgs 19.20, smic 502, atlas 18. what do u suggest that i buy, sell, hold?

    Comment by gerald | January 13, 2011 | Reply

    • if i were u, i would sell all mer and use the cash to beef up on mpi, dmc. then try to reduce the number of issues from 12 to 6. u have all the good stox but the key to gain is the entry and exit timing. seems like a buying spree at the height of the rally.

      Comment by obilesil | January 14, 2011 | Reply

    • Just judging from your entry prices, perhaps you should do the opposite of what your doing now, if you feel like buying, don’t. If you fee like selling, buy instead

      Comment by Cammy | January 14, 2011 | Reply

  17. Hope everyone is smiling with the “green”

    Comment by jopard | January 14, 2011 | Reply

  18. Any ideas about IMI? should I cut losses with this stock?

    Comment by cathy | January 14, 2011 | Reply

    • cutloss,, there are other stocks that is fundamentally sound.. btw i am from a semicon industry..

      Comment by Blogspot | January 14, 2011 | Reply

      • I’m so stressed with IMI, i’m lossing 30% of my investment now. I should cut my losses now. Thanks.

        Comment by Cathy | January 17, 2011

    • Cathy,
      IMI was brought to market in what was called “listing by way of introduction,” a method of listing that the PSE halted because it made a lot of room for price manipulation. What was happening was they listed company but did not offer new shares to the market, only committing that they will do a follow on offering within 12 months. In the interim, there was very little supply of shares in the market, and the price was in fact naturally squeezed because of the absence of sellers. I haven’t followed any of their disclosures because I did not like the stock anyway. You’ll have to make you own call.

      Comment by Gus Cosio | January 15, 2011 | Reply

      • Thanks for the insights.

        Comment by Cathy | January 17, 2011

  19. Hi Guys. Last year, I was able to gain 62% from my holdings. I traded with PNB, MPI, DMC, JGS & AGI. Come 2011, I would like to get the same % returns but Im thinking that maybe I was just lucky that year or is it really still possible this 2011?

    Comment by Ryan | January 14, 2011 | Reply

    • Hey Ryan!

      you may not necessarily grab that same returns but I believe its possible to get a more than average result. There is no secret though, do your homework and follow the numbers. Hope that helps

      Comment by twisted_pretzel | January 14, 2011 | Reply

  20. Good Day Mr. Cosio,

    I’m worried about my CEB, do you think I should cut my losses now? Or do you see this stock going back to it’s IPO price and perhaps even higher than that? Thank you Mr. Cosio.

    Comment by ScaredCEBholder | January 14, 2011 | Reply

    • Hello ScaredCEBholder,

      First don’t be scared, this behavior will make you stressed. So I suggest you to be a HappyCEBholder. Kidding aside I believe that CEB fundamentals are strong its just because of recent rumors spreading that future rival Air Asia might take up market share and CEB will also be hiring more workers in the future 4000 to be exact you can find this news in local newspapers and it might also be the recent rumor of SMC buying in PAL to make the competitive enviroment much more active.

      I also believe once the price stabilizes you can average down if ever you are at a loss and if you believe in this company. But if you are uncomfortable with this please sell your position and transfer them to better trending stocks. But this is solely my opinion and I believe Mr. Cosio has a better understanding of this situation.


      Comment by Foreign Investor | January 14, 2011 | Reply

      • More appropriately, we’re on the same plane! or we’re on the same flight!
        CEB just breached the P100 mark.
        Come on! Bring back the dancing FAs!

        Comment by Nikmatik | January 15, 2011

    • Hi ScaredCEBholder,

      We’re on the same boat with CEB right now. Let’s wait for Sir Gus’s take on the stock. 🙂

      Comment by KennyV | January 14, 2011 | Reply

      • I would like to correct my mistake about the number of employees that they will hire:

        Cebu Pacific to employ additional 2,000 workers

        Thank you

        Comment by Foreign Investor | January 15, 2011

      • CEB major cost component along with other airlines is fuel cost. The drastic increase in fuel price two years ago significantly brought down earnings for CEB despite impressive passenger growth numbers. Investors are looking more at this trend rather than competition as the recent fuel increase does not bode well for the industry in general. I think one of the major factors to consider owning this issue is to consider fuel prices in the coming year or two.

        Comment by Cj ch | January 15, 2011

    • I echo Warren Buffett’s words with regards to the airlines business “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

      — Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008. Peace !

      Comment by D'intelligent investor | January 15, 2011 | Reply

  21. Good Day Mr. Cosio,

    I’m worried about my CEB, do you think I should cut my losses now? Or do you see this stock going back to it’s IPO price and perhaps even higher than that? Thank you Mr. Cosio.

    Comment by ScaredCEBholder | January 14, 2011 | Reply

    • ScaredCEBholder,
      I own some CEB at 125 and some cheaper. I am not going sell it unless I can replace it with another stock that I think will do better. In short, I am not worried that it will not go back to 125, and to sell it without replacing it with another position would be to lose completely without giving myself a chance.

      Comment by Gus Cosio | January 17, 2011 | Reply

  22. guys read the latest disclosures of URC

    debt/equity ratio still good at less than 0.5

    net profit margins at 15%, which is very good for a consumer goods company..

    earnings per share at 3.75, which means that price/earnings equals 10 or less..

    earnings have been impressive too, close to double from the previous year..

    all in all, URC is looking good…

    Comment by cliffhanger | January 14, 2011 | Reply

    • Cliff..

      I bought URC at around 23/s and sold it at 45. I might buy some now its at 35.
      Pit Senyor!

      Comment by jopard | January 15, 2011 | Reply

      • p/e and p/bv are based on 35-37 price range, so yes, 35 is still a very good level based on the numbers 🙂

        Comment by cliffhanger | January 15, 2011

    • For a better evaluation, you can remove the profits from its investments in bonds for a better view for its EPS

      Comment by alexis | January 15, 2011 | Reply

  23. I’ll buy Ceb @ 75/sh the original IPO Price…

    Comment by Reality Bites | January 15, 2011 | Reply

  24. I am curious as to why JGS keeps buying back shares of CEB. There could only be two possible reasons. First, maybe they think it’s undervalued or they bought it back to avoid any hostile takeover since CEB price is going down the drain. I think it is the latter reason. CEB price in the first place is too expensive already at 1 peso par value.

    Comment by Seth | January 15, 2011 | Reply

    • They are buying a lot of planes due to a massive expansion. If all goes according to plan, and if they are able to do in 4 years what they did in a decade (According to them), then CEB would be cheap.

      Comment by jasper | January 15, 2011 | Reply

    • My guess:

      JGS has to defend the price to keep the confidence of the investing public. Imagine, if they allow a steep price drop, wouldn’t you be thinking that they’ve overpriced the IPO (that happened less than 3 months ago)? [Not saying they are… I haven’t done due diligence on CEB to know the fair value.]

      There are 2 ways to do this: either JGS buys the shares or CEB does a share buy-back. The is out of the picture because CEB should be spending the money for capital expenditures (as they’ve announced) instead of using it to defend the stock price.

      As to why there is selling pressure in the first place, any of the ff. reasons sounds ok enough to induce fear/uncertainty/doubt: increased competition from Air Asia’s entry, the pocket open skies policy, fuel cost going up, the Gokongwei stigma, the La Nina effect.

      Disclosure: I don’t have CEB.

      Comment by Mal | January 15, 2011 | Reply

      • What is the Gokongwei stigma?

        Comment by Nikmatik | January 16, 2011

  25. First Metro has buy rating on LND with a NAV of 2.36.

    Comment by poorguy29 | January 15, 2011 | Reply

  26. is anybody here based in dalian, china? apologies in advance, feel free to ignore. thanks.

    Comment by ed | January 15, 2011 | Reply

  27. Hi, anybody who wants the meaning of risk and beta for a stock? I am new and I want to understand which is better, a higher beta or a lower beta. Thanks in advance.

    Comment by Bu$h | January 16, 2011 | Reply

    • Hi, lets just put it this way, risk is the chance that what you are expecting will not occur.

      beta in the other hand is the sensitivity of the stock to a certain variable. for example if you have a high beta to let say to PSEi, a change in PSEi will highly affect the stock. you can never tell if the beta is good or bad until you know what is the corresponding variable, so the first step is to know the corresponding variable.

      Comment by kmart | January 16, 2011 | Reply

  28. RLC just released the 2010 annual report. They managed an EPS of 1.31 for the year. And more importantly, they managed to increase EPS year to year for the last 3 years.

    I think its a good investment, particularly if one is not too keen on VLL for one reason or another.

    Comment by jasper | January 16, 2011 | Reply

  29. Hi Sir Gus, hi everyone,

    Can somebody please explain the recent PSE memo regarding taxation on below minimum public float stocks? (for your reference:

    I’d like to clarify whether this 5-10% tax is a sales tax that will be collected by the brokerage or something else? I’m curious how much this affects us.

    Comment by Kent | January 16, 2011 | Reply

    • If the BIR strictly implement the Memo, investors will be adversely affected by the 5-10% capital gain tax. My understanding of the capital gain tax is for every sale irrespeective of whether there is profit made by an investor from the sale of stocks (with below minimum public float).

      This issue was already addressed by the SEC/PSE in November 2010 by issuing a Memo to all publicly listed Companies with below minimum public float of 10% to comply with the PSE listing rule within one year from Memo issuance, otherwise they will be penalized including suspension and delisting. The BIR ruling though is talking of 20% minimum public float. I guess we may just have to minimize if not avoid trading these Companies for the meantime until the BIR ruling is further clarified by the concern Govt. Agencies and PSE to the our brokers and investing public.

      Comment by Ralph | January 16, 2011 | Reply

      • capital gains tax is on the profit.

        Comment by ed | January 16, 2011

    • From what I understand, under the National Internal Revenue Code, which is the governing law on taxation, when shares of stock of listed companies are sold,the income derived by the seller from the sale is subject to a capital gains tax of 1/2 of 1%. On the other hand, shares not traded in the exchange are subject to higher income tax of: 5%, if the gain does not exceed P100,000; and 10% if the gain is more than P100,000.

      It appears from the recent BIR memo that listed companies with less than the required public float will not be considered as publicly-listed companies for taxation purposes. Hence, the income derived by the seller from the sale will be subject to the higher income tax rates of 5% or 10%, depending on the amount of gain. The seller will not be entitled to the lesser rate of 1/2 of 1% final tax usually imposed on shares of publicly listed companies.

      Comment by beanstalker | January 16, 2011 | Reply

      • So sir, what if the sale did not result in a gain, rather a loss? Is it like a sales tax that does not care for as long as you sold it? In short, is the 5-10% to be levied on the profit only?

        Comment by Kent | January 16, 2011

      • If you did not gain then 0% taxes

        Comment by Cammy | January 17, 2011

      • i don’t think the BIR could implement that memo in the time being since there’s a law that says stocks sold/ under PSE is only taxed 1/2 of 1%. Making such charge would make it illegal or unlawful, unless a new law is passed that stocks of companies with less than 10% public float will be charged 5% or 10% sales tax.

        Comment by ricky | January 17, 2011

      • The 5%/10% is an income tax – imposed only the actual gain realized from the sale (Section 24 of the National Internal Revenue Code). Should you sell at a loss, I would imagine that there is no income tax due from the sale.

        The 1/2 of 1% is a percentage tax imposed on the gross selling price of shares listed and traded in the exchange (Section 127, NIRC). Since the tax is based on the selling price, it is payable even if the proceeds of the sale is lower that your acquisition cost.

        Comment by beanstalker | January 17, 2011

  30. Brent Crude 98.38/ barrel around 1.62 to go before touching 100 psychological level…Gold is Falling to 1361 last friday. 1350 next psychological support..Rising OIL not good for Gold..

    Comment by CommodityBull | January 16, 2011 | Reply

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