Gus Cosio says so

Ideas on the Philippine Stock Market

Early in 2011

10:52 pm Sunday  16 January 2011

After the roller coaster ride in the market in the first two weeks of 2011, it would be good to sit back and framework a market outlook for the rest of the year.  The problem, however, with a very look perspective is that it does not become very helpful in our day-to-day trading activities.  I will try to share my longer term view and describe how I think share prices in general will work its way out in the coming weeks.  Forecasts and outlook are like are like navigation tools and a map though.  Things look different when you get to the different points.  The map tells you where you’re going, but it is up to you to make adjustments along the way.

Fundamentally, the things that are going for the market are:

1)      sustained economic growth which are underpinned by:

  • recovery in the industrial and export sectors,
  • job growth in the BPO and services sector, and
  • growth in consumer spending fueled in large part by OFW remittances.

2)      Low interest rates which are likely to be stable early in 2011.

3)      A high level of business confidence in anticipation of infrastructure programs to be carried out by government.

4)      The business cycle which has bottomed out around 12 months ago.

I think all of these will contribute to some moderate growth in companies earnings among those listed in the PSE.  Undoubtedly, some companies will be benefited more strongly by the business environment particularly if real investments are going in their direction. A case in point is infrastructure which will be attracting a big chunk of foreign direct investments as well as moves from local conglomerates.

Now, that’s the long view.  The near-term will be strongly affected by portfolio flows borne out of the stock selection that fund managers will be making.  Here are some educated guesses.

I suspect the ones that will be in the buy list for the coming weeks would be MPI, AP, AEV, DMC, EDC and SCC.  These stocks saw healthy consolidation to a point that it made people nervous.  I have a hunch that many that have taken profits will be comfortable reinstating their portfolios in these stocks.  I think the banking stocks should be viewed with critical perspective considering that lending spreads may be compromised a bit by low interest rates.  I imagine that the banks with either a well diversified business mix or those who have a good record of profitability should be the ones leading the way in the next few weeks.  I would say for value the choices will be MBT, SECB and UBP.  For property, I imagine that VLL has the most to run, but LND due to the recent AGI announcement on a joint venture into the Boracay property opens up a whole new ball game for LND as they use existing property for leisure and gaming prospects.

For mining, my bets are still on NIKL and ORE.  ORE may be a bit of a speculative game, but my sources tell me that at least 86 metric tons has been stockpiled and ready for shipping.  If you will  dabble with ORE, just do not forget that this company still has to establish a track record.  That is the big RISK.

I will probably come up with my list of fundamentally sound stocks which I will choose to follow for the year.  In the meantime, I sense that the January effect is now upon us.  A lot of the re-balancing by foreign portfolios have been done.  If there is going to be any accumulation to be done prior to 4Q 2010 earnings results disclosures, it will be in the coming days.  It would be better to be long rather have nothing in your portfolios.

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January 16, 2011 - Posted by | Financial markets in Asia

44 Comments »

  1. Hi Sir Gus!! It was great meeting you last Wedneday. You look so much younger in person!

    Anyway.. I almost have all the stocks you have on your buylist for the coming weeks.. MPI, AP, DMC, AGI and VLL. Am thinking of selling my JGS shares though, which I got at around 24++ in favor of some EDC. Do you think its a good move?

    Thank you and more power!!

    Comment by Cholo | January 16, 2011 | Reply

    • Cholo,
      Just like you, I got some JGS at 24, then when it dropped to 22, I got some more. Rather than looking to sell now at 18, I am looking to buy some more simply because I think that the stock will eventually trade above 24. Right now, I estimate it to be trading at 9.5X PE and 0.73X book value. I’m not saying that you should not sell it. I just want you to know how I feel about the stock.

      Comment by Gus Cosio | January 16, 2011 | Reply

    • Whew… Good thing I managed to sell JGS at 25.50 last Nov, and Got DMC. I don’t know what’s happening to Gokongwei Stocks but they are getting a big Beating… imagine:

      JGS peaked @ 27 Nov , now : around 18-19
      URC @ 44 Nov, now: 34-35
      CEB @ around 125 now: 99-100
      DGTL @ 1.60 sometime in Oct i think now: 1.50

      Ny idea what happened? I like the Gokongwei companies and products but if you got them last nov – dec, u’d be at a loss now =S

      Comment by Gordon Gekko | January 16, 2011 | Reply

      • Hello Mr. Gekko,

        I remember you being a huge follower of Gokongwei-led companies since way back. I think its just healthy consolidation though considering URC and JGS have increased by more than 100 percent each last year. CEB is probably down due to the expected entry of Air Asia and increased competition by Zest Air.

        BTW, URC is setting aside 2.5 billion pesos for share buybacks if im not mistaken.

        Comment by twisted_pretzel | January 17, 2011

      • CEB is killing my porfolio. I thought IPOs in a bull market goes up.

        Comment by Wanderer | January 17, 2011

      • I hope you learned something from it. Ask yourself then why you bought the stock because I bought it also at 125 and I am not bothered. After all it has only been 3 months.

        Comment by Gus Cosio | January 17, 2011

      • Its very difficult to time the market on a day to day basis. However, with fuel prices still expected to gain further, CEB would be a direct casualty despite their fantastic business model and execution. It would be great to accumulate this company when the higher fuel cost is fully priced into CEB.

        Comment by Cj ch | January 17, 2011

      • There are no good news coming out so far.

        Comment by Seth | January 17, 2011

      • A very big loss i might add.

        Comment by Cammy | January 18, 2011

    • Hi Cholo, My unsolicited advice is to hold it for two-three weeks more if you want to sell. The moment DBP-Daiwa stops selling it, my take is that it will be at least 10% higher than its current price of 19. My average price is 19.14 and i`m upbeat about this stock.

      Comment by Chris M. | January 17, 2011 | Reply

      • Chris,
        In addition to what I replied to Cholo, it seems that JGS and RLC are being avoided right now by fund managers because of the impending SRO. Having said that, my feedback is that some of my fund manager friends are just accumulating slowly.

        Comment by Gus Cosio | January 17, 2011

  2. How about RLC gus? Have you bought some when it went below 14?

    Comment by jasper | January 16, 2011 | Reply

    • Jasper,
      I think RLC will make you good money over the next 3 weeks.

      Comment by Gus Cosio | January 17, 2011 | Reply

  3. Hi All,
    First, I would like to thank Sir Gus.
    I started trading February last year and I made 20+ % at the end of 2010. What I did is just followed Sir Gus’ blogs and siyempre pati mga comments. I learned a lot lalo na dapat di maging greedy.

    To Cholo, Sir Gus is correct. Ganyan din ginawa ko sa JGS. Bumili pa ulit ako. Here is another tip na natutunan ko lang din. I’ve set my buy and sell levels to 10%. But with JGS, I had -10% but instead of selling, pinag-aralan ko muna if it’s the best thing to do. At +10%, benta ko na agad basta huwag na lang panghinayangan kung tumaas pa ulit.

    Baguhan pa rin ako pero sana nakatulong. Maraming salamat ulit.

    Comment by Art | January 17, 2011 | Reply

  4. Sir Gus, thank you so much for sharing your insights in our Insular Life Investment Forum, may i ask your permission to repost this post on my blog? Thank you and more power!

    Comment by Alijeffty C. Gonzales | January 17, 2011 | Reply

    • go ahead, i have no problem with that.

      Comment by Gus Cosio | January 17, 2011 | Reply

  5. hi sir gus,

    what do you think about VLL? seems to be lagging… can’t seem to get its feet off the ground… why do you think?

    thanks! 🙂

    Comment by rommel | January 17, 2011 | Reply

    • rommel,
      I do not know why it is lagging. One perspective I’d like to take is that it is giving me some more time to accumulate the stock.

      Comment by Gus Cosio | January 17, 2011 | Reply

    • Notice that there are still strong sellers of this stock around the 3 peso level (ATR). If they are done then that would be the time for it to take off. And there are also strong buyers at that range, DEUSTCHE has been a heavy buyer since December. Just my opinion.

      Comment by Seth | January 17, 2011 | Reply

  6. Hi Sir Gus,

    A friend of mine suggested to investin SMCP1. Accoriding to her even if the shares go down, I still will get an 8% dividend. Is that true. Would it be advisable to invest in this stock. Please advise. Thanks.

    Comment by mirasu66 | January 17, 2011 | Reply

    • Buying preferred shares is closer to investing in fixed income. It becomes a credit issue. The question you have to ask yourself is whether or not you are happy to be a creditor of the issuer.

      Comment by Gus Cosio | January 17, 2011 | Reply

      • Sir Gus,

        I would just like to say your seminar was excellent and extremely informative.

        I have some questions here.

        1. If I were to hold some preferred stock, which one would be the highest yielding and best one to hold?

        2. How big should the preferred stock position be in my total portfolio?

        3. Why is FLI and FDC going in different directions? Is it still okay to hold on to FLI, or is it better to dump this, even at a loss, to get LND, BEL, or LR?

        4. I want to like EDC, but problem is it seems to be stuck in a range ever since its release in 2005. What’s your reason for being liking this stock, and what’s your target price for it? Is it still a good buy at P6.20?

        Thank you and more power.

        Comment by V | January 17, 2011

  7. Hi Gus,

    What could be the reason why it takes quite a long time for ORE to reschedule shipment while it takes only a week or two for AT to do such when bad weather occurs. Bad weather usually lasts a week at the most, thus, shipment should have resumed already for ORE.

    Comment by roy | January 17, 2011 | Reply

    • Roy,
      I do not know exactly except that AT has a very developed wharf while ORE pier is quite primitive.

      Comment by Gus Cosio | January 17, 2011 | Reply

      • Roy, Gus,

        AT kase is hard rock mining. So even if it rains, there is not much issues with moisture content. ORE and other nickel companies do soft soil mining. If it rains and ORE continues to operate, the soft soil accumulates a lot of water and hence moisture increases. If moisture increases, the nickel grade becomes lower.

        Comment by Zandro Zulueta | January 17, 2011

      • Thanks for the good information, Zandro.

        Comment by Gus Cosio | January 17, 2011

  8. Hi Sir Gus,

    Just would like to seek your thoughts on petron corp. i bought it at 19.50 hoping that it will continue with its upward traction and now it is playing on the 15+ level. would you advise me to hold or cut loss? thanks!

    thanks

    Comment by rey | January 17, 2011 | Reply

    • Rey,
      If you simply look at valuations, Petron (PCOR) is not expensive at 8X 2011 forecast earnings. Do you really like the stock or were you just sucked into it by speculative reasons. If you like the stock then you should buy some more. If you were simply speculating, you should have sold it when it touched 18.

      Comment by Gus Cosio | January 17, 2011 | Reply

      • Sir Gus,

        Where can I check the 8×2011 forecast earnings of Petron? I hold substantial position on Petron and reading your post reassures me to accumulate more while its on consolidation.

        Comment by Ralph | January 17, 2011

      • I got the figure from a consensus among analysts tabulated on Bloomberg.

        Comment by Gus Cosio | January 17, 2011

  9. sir gus, baket ang slow ng movement ng mpi stocks? Or it might erupt just like PAL and LR , one day almost 35 to 50 percent gain =) ?

    Comment by night phantom | January 17, 2011 | Reply

  10. Sir Gus, Meralco made me smile again in the last few minutes of trading. I hope I will be able to sell them at a good price tomorrow. maybe 300? Hehehe:)

    Comment by Shan | January 17, 2011 | Reply

    • For the time being, best to trade the range, i.e., sell close to 300 and try to buy back close to 250.

      Comment by Gus Cosio | January 17, 2011 | Reply

      • Thanks Sir Gus.

        Comment by Shan | January 17, 2011

  11. Hello sir gus,

    I noticed you mentioned MBT, SECB, and UBP as value financial stocks. A few weeks ago, you mentioned that UBP was not significantly undervalued (in a reply you made to my comment)? Is there any new updates on UBP? Thank ahead of time.

    Comment by twisted_pretzel | January 17, 2011 | Reply

    • I got an updated forecast for 1Q2011 for UBP.

      Comment by Gus Cosio | January 17, 2011 | Reply

      • oh! would it be too much to to ask you what the numbers are like?

        Comment by twisted_pretzel | January 17, 2011

    • read your blog, looking good, keep it up!

      Comment by cliffhanger | January 17, 2011 | Reply

  12. Hi Sir,

    Are you familiar with Solid Group? They have posted a huge profit from the sale of their MyPhone products. I was able to tinker with one of these and they are easy to use and I think some models are dual sim capable. The company is also the owner of Destiny cable.

    Thanks!

    Comment by Cholo | January 18, 2011 | Reply

    • I read about myPhone’s success story in some news i think. It was such a bold move for that man to compete with international big players in the mobile handset industry.

      Moving on, the property sector is finally showing some signs of life, following the movements on LR, ELI, & LND. I’m hoping ALI to be back on track soon.

      Comment by Jonathan | January 18, 2011 | Reply

  13. I just want to thank everybody in this forum specially sir Gus. its been so educational for newbie like me.
    i already come up with my portfolio which i will hold 5 years or longer.once again, your thoughts are very much appreciated. Thank you very much!

    ALI
    MPI
    FGEN
    NIKL
    MBT
    MER(just started accumulating)
    JFC(just started accumulating)

    Comment by irving | January 18, 2011 | Reply

  14. Sir,
    What is your take on FLI?

    Comment by Allen | January 18, 2011 | Reply

    • I would rate FLI a buy at 1.20 or below.

      Comment by Gus Cosio | January 18, 2011 | Reply

  15. Hi Sir Gus

    you discussed in the seminar that there will be no significant change in the rate of dollar to peso this year. I have a steady income that comes to me in dollars. Do I invest in dollar denominated instruments (bonds, ROPs?)or do i convert it to invest in phil. stocks
    /mutual funds ? Does First Metro have dollar denominated equities?

    Comment by weena | January 18, 2011 | Reply


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