Gus Cosio says so

Ideas on the Philippine Stock Market

Sitting on the dock of the bay

7:10 pm  Monday  31 January 2011

To say that we had a bloodbath today would be too much of an understatement.  We were not only slaughtered today, but also chopped up and hung up to dry.  It is undoubtedly a “blood in the street” situation particularly because investors both local and foreign totally ignored the 7.3% full year growth in 2010 GDP.  When markets react stronger to bad news rather than to good, you know that the market is generally bearish.

I say ‘generally’ rather than ‘completely’  because I noticed that there were some bargain hunting near the close of trading.  For example, DMC was trading at a low of 32.65 yet closed at 33.75 on solid buying of around 800,000 shares.  AP, although closing slightly above the day’s low at 27.75 (low was 27.65), had buyers of more that 3.5 million shares near the close.  JGS was sold off to 18 on 48,200 shares but was bought up to 19 at the close on 233,000 shares.  You could also see high conviction buying of RLC with 6.342 million shares being bought up at the close.  There may be others like BPI and MBT; I just did not have time to check the details.  Nevertheless, these are just a few signs of bottom fishing.

There is one thing to remember when buying stocks at the sight of blood – make sure that the stock you buy has very strong reason to be alive because we really do not know when the bloodletting will end.  Today is a good example of why you should always have some cash on hand.  The 3881 level is very important because this was the same level when we saw in a precipitous drop that ended last Monday, January 24.  I would think that 3881 is a good support particularly because it corresponds to oversold levels of the PSEi.  Additionally, much of the strong individual stocks in the PSEi are  also exhibiting oversold conditions.

I cannot conclude that the Philippines is over reacting to the crisis in Egypt because the whole world in fact thinks that a dangerous situation is existing due to the country’s strategic location.  One can just imagine how trade could suffer if something happened to the Suez Canal which connects the Mediterranean to the Arabian Sea.  Another aspect to remember is that Egypt is quite closely tied economically to Qatar, Dubai and the United Arab Emirates, not to mention Saudi Arabia.  There are over a million Filipino OFWs in the region.  We cannot underestimate the implications to our countrymen if things turn for the worse.

The good news is that extreme conditions are working their way into stock prices globally, Philippines included.  Markets in the region, except Shanghai and Taiwan, are down.  In japan and Korea, in spite of positive industrial production numbers, stock prices tumbled as well which leads most people to conclude that most of the losses are on account of risk reduction among portfolios.  The prudent thing to do is to watch how the situation in Egypt develops without disregarding values.  As in all political tensions, resolution is the ultimate objective and that takes time.  Time also manages to squeeze out all the risk expectations and investors eventually adjust to the new normal.  That is just the way things go.

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January 31, 2011 - Posted by | Uncategorized

70 Comments »

  1. Sir, tuloy po ba ang Feb 2 seminar? thanks po.

    Comment by Turtle Capital | January 31, 2011 | Reply

    • yes, the seminar is pulling through.

      Comment by Gus Cosio | February 1, 2011 | Reply

  2. Hi Sir Gus, i think the GDP results have not been factored in today’s prices since the results were released after the trading. I expect the PSE to be very green tomorrow (>1.5% increase) as a result of this welcome development.

    I can only hope i`m right since i went all in today picking DMC@32.80 and MER@215. 🙂 My other positions are JGS, VLL, PCOR, MBT, EEI, SINO, ORE.

    Comment by Chris M. | January 31, 2011 | Reply

    • You did well to have bought DMC@32.80 and MER@215. I think those will be winners.

      Comment by Gus Cosio | February 1, 2011 | Reply

      • Mr. Cosio, is DMC an even better buy now at 32.70?

        Comment by Johnny | February 1, 2011

    • cris,

      although we havent met yet i know from your comment how resourceful and diligent you are. we have the same position in dmc and jgs but what fails me to understand well is the implication of their planned new share offering to private institutional investor of jgs and subscribing back the same number of shares at the same price.if these would be case i think there would be no dillutory effect on our shareholding, only an increase in their public float. do you share the same opinion?

      thank you so much and i will be glad to meet you tomorrow on the forum. hope you will be there.

      Comment by richard | February 1, 2011 | Reply

      • hi Richard, technically, yes there will be no stock dilution since the price it is offered is equal to the price it will be sold. However, there will be a “value dilution on its fair price” if the shares are sold at its current undervalued price of 18.50. In my computation however, even if we factor in this value dilution, the fair value of JGS should still range from 24.5-25.5 down slightly from 25-26 consensus estimate. So at its current trend/value, both my technical and fundamental indicators are pointing a conviction buy for this stock. See you tomorrow!

        Comment by Chris M. | February 2, 2011

      • Chris M.,

        What technical indicator do you use?
        MACD and RSI?

        Thanks and God bless!

        Ricky

        Comment by ricky | February 5, 2011

      • Hi Ricky i look at both since the two measures are complementary BUT i never based my buy-sell dynamics on these indicators solely. While RSI measures the overbought or oversold levels of a stock MACD compares its trend and momentum by comparing the so called exponential moving average (EMA) over a short term period (typically 12 days) over a long term period (typically 26 days).

        There are several things one should understand before using the above indicators.

        1. RSI assumes conservation of cash flows, that is, the amount of money revolving around that stock follows the law of supply and demand. This has a very limited validity and works best if the stock is trading in a range AND is not in danger of being out of favor.

        2. MACD ignores completely the law of supply and demand (is not hinting at oversold or overbought levels of a stock) but hints more at cash flows and stock sentiment (weak hands vs strong hands). MACD indicators in available programs however is quite arbitrary since one compares moving averages over 2 weeks vs. 1 month.The volatility in PSE driven by low liquidity of most stocks will make this indicator rarely useful.

        Looking at the 30 most active stocks in PSE over the last two years, combination of the above indicators will not allow one to outperform the market. In fact, momentum traders based on this indicators will be crippled by the buy-sell transaction fee totaling to ~ 1%.

        Comment by Chris M. | February 6, 2011

      • thanks for the input.

        what can you say about DMI? is it a better and more reliable indicator than the two mentioned above?

        thanks again.

        Comment by ricky | February 6, 2011

    • sa lahat ng stock pics mo, VLL lang ang undervalued.. in a bear market expect your positions in overvalued stocks to have strong downward pressure… review your fundamentals again without projecting too much positive expectations in the future.. being consistently successful in stock investing/trading is not about faith

      Comment by chris munti | February 10, 2011 | Reply

  3. US futures are currently up so that may also help the market tomorrow.

    I’m planning to average down on VLL, LPZ and ORE – just wish I had more cash though.

    Comment by blue7 | January 31, 2011 | Reply

    • i do not see the egypt crisis will result to a big turbulence for OFW’s in middle east. GCC has their own cooperation and the council that will oversee the regions economic capabilities. 30 years of president Mubarak and the rising inflation in egypt (up to 70%) of the basic commodities, the real cause of the uprising. I see this as the philippine people power in 1986.

      Cut loss already on ORE, i believe it will continue to dip down to 2.00 level. the rumor on shipment has been saturated. I continue to like VLL and LPZ but at this time, no, LPZ on my porfolio. I will get it soon, i am expecting good return from LPZ once the write off approved by SEC

      Comment by epoy | January 31, 2011 | Reply

  4. Hi Sir Gus, i have read in other threads that you will visit cebu again. Pls include me in the list of your invitees.
    I was referred by your friend Mr. Jeff Gonzales to read your articles. I really find this info very helpful to us investors.
    Sayang, i just learned that you visited cebu last week but Mr. Gonzales and i was in Tacloban for a roadshow.
    Thanks in advance.

    Lito

    Comment by lito | January 31, 2011 | Reply

    • Lito,
      We may be back in Cebu on March 17. I’ll keep you posted in this blog of the details.

      Comment by Gus Cosio | February 7, 2011 | Reply

  5. Sir, thank you for shedding light on the effects international events. What do you think will the effect be of the recent downgrading of Japan’s credit rating have on stock prices and our economy in general? Thank you.

    Comment by Daniel Camagay | January 31, 2011 | Reply

    • I think the downgrading of Japan is merely a confirmation of the deteriration of its economic fundamentals. That has already been factored into our – the Philippine’s – relative risk profiles.

      Comment by Gus Cosio | February 1, 2011 | Reply

  6. What do you think of china bank(chib) is it a good buy?

    Comment by Cathy | February 1, 2011 | Reply

    • Yes it is a good investment. Do not count on trading it though because it is a slow moving not so liquid issue.

      Comment by Gus Cosio | February 1, 2011 | Reply

      • I have this stock too for two years already, yearly stock and cash dividends. A very safe and good investment indeed

        Comment by Ken | February 3, 2011

  7. Sir Gus,
    I think its just an over blown reaction in EGPYT. In the first place, this is civilian uprising not military. How can the civilian endanger vital facilities if the military stood their ground to protect this facilities? Unless the military themselves take sides with the upriser… then it will be another issue of major major proportion 😦

    A Good time to buy was yesterday, i guess and i did took few buys due to limited cash infused 🙂

    Comment by haribon2007 | February 1, 2011 | Reply

    • @Haribon expect a Relief Rally Today..Oil Stocks saves US Market..Oil up 3% because of Egypt…

      Comment by otep | February 1, 2011 | Reply

    • you may be right.

      Comment by Gus Cosio | February 1, 2011 | Reply

    • there are buying indeed, but very selective buys. these picks have the tendencies to run ahead of the crowd when the selling pressure diminishes… i guess.

      Comment by haribon2007 | February 1, 2011 | Reply

  8. Sir, I hope we end up green today. 🙂

    Comment by Shan | February 1, 2011 | Reply

    • we can keep on hoping, but it seems we’ve got some more to go.

      Comment by Gus Cosio | February 1, 2011 | Reply

  9. Welcome to the bear market!I’m gonna take advantage of this…buy buying more like crazy!

    Comment by Scared Investor | February 1, 2011 | Reply

    • Don’t get carried away by emotions. Investing is not a sprint. Trying to time the market will drive anyone crazy. Nine out of ten times, when supposed “experts” make a bullish call, the market is actually at the tail end of the bullish pattern. And so is the opposite. Stay focused on your companies prospects and disciplined on the amount of risk you are willing to take.

      One thing this blog seems to focus on is past and current PE ratios. While important, forward PE ratios are actually more important. Forward earnings are what will increase the value of the company. To try and select companies that will do better than what is expected even by analysts. This is where the quality of management plays a crucial role.

      Comment by Cj ch | February 6, 2011 | Reply

  10. VLL is now the cheapest property stock in the PSE.

    Comment by Seth | February 1, 2011 | Reply

    • I agree, seth. Unfortunately, people are in a selling mode as many investors are running scared.

      Comment by Gus Cosio | February 1, 2011 | Reply

    • Meet the new prices, same as the old prices.

      I bought VLL last year for 2.5 – now its at 2.5 again. Meg is at 2 pesos again. RLC is at 14 pesos again.

      Parang nag-reset.

      Comment by jasper | February 1, 2011 | Reply

      • I remember when I entered, PNB was at 28, JGS at 13 and MPI was somewhere at 3..

        Comment by Chriss | February 1, 2011

      • Those three are undoubtedly good, but poor PSE… Some stocks can be ruined even with just a few million pesos.

        Comment by Seth | February 1, 2011

    • Cheap may not necessarily be positive. Furthermore, be wary of the nav’s of property companies as they are very subjective-specially with underdeveloped property. We have been in a very bullish property sector the past few years and analysts have a tendency to overstretch valuations. Record low interest rates may not seem to be here forever. I think VLL aside from lacking management depth is too undiversified without recurring earnings aside from direct sales.

      Comment by Cj ch | February 6, 2011 | Reply

  11. Sir Gus,

    what do you think of PAL, coz i bought it at 7.80.

    Comment by agus | February 1, 2011 | Reply

    • ouch. that must have hurt your portfolio.

      i think the reason it went that high was because of the news (or gossip) that SMC was planning to buy PAL from Lucio Tan…so a day and a couple of days after the word came out, the price surged to that level where you bought…

      unfortunately, nothing, as of now, has materialized so the price went gradually down..

      Comment by ricky | February 6, 2011 | Reply

  12. wrong limp in to mer at 47P.
    averaged down at 37P and 17P.
    I hope it bounced before I run out of cash.. hehe =)

    Happy Investing to everyone =)

    Comment by irving | February 1, 2011 | Reply

  13. Bought back ORE at 3.08P after I released my position at 3.7P last year. You think it can go down as LOW as 2P?

    Comment by irving | February 1, 2011 | Reply

    • I doubt if it can go down to 2 unless it breakdown the 2.60 support level. I also bought back at 3.05 and 2.96 after I got out of my position at 3.73.

      Comment by Ralph | February 1, 2011 | Reply

  14. Index is now down to 3,830. Time for a little bargain hunting.

    Comment by Alvin | February 1, 2011 | Reply

  15. Hello Sir Gus,

    I read a column the other day in the business mirror, I don’t remember who wrote it but at the very last paragraph there was some sort of technical analysis of the PSE. It said that if it does not stabilize and hover around the 4000 level by end of march the bulls would have set in. Would you agree with that observation? Why or why not? Thanks

    Norman

    Comment by twisted_pretzel | February 1, 2011 | Reply

    • “It said that if it does not stabilize and hover around the 4000 level by end of march the bulls would have set in.”

      can you clarify this Norman.

      Comment by rere | February 2, 2011 | Reply

    • i guess we don’t even need to wait for march… 4K target is just down the bend ready to be taken back at a wink of a BULL’s EYE 😉

      Comment by haribon2007 | February 2, 2011 | Reply

  16. Major MArket sored high last night!
    BULLISH! =)

    Comment by irving | February 2, 2011 | Reply

  17. In my opinion, PSE market will continue to be weak despite the strong performance of DOW. I think the focus now is in the US, PSE will have its own run after DOW will settle down and reach it’s peak. ALL the global fund manager’s focus is in the US because currently they (US) are in a bull market. One evidence that they are in a bull market, is that they are defying gravity in spite of the political turmoil in EGPYT.

    For PSE, we need to be patient and we should re-think of our strategies and decide what kind of investor we will be considering of this deep correction

    Comment by claire | February 2, 2011 | Reply

  18. Would you think TEL’s price is now ok? (below 2500) I am looking for a stock which offers steady dividends..

    Thanks

    Comment by Chriss | February 2, 2011 | Reply

    • Chris,
      You and i may be thinking on the same wavelength. I bought some BPI at 51.25 yesterday due to very strong earnings and positive ratings from analysts I know. I suspect BPI will give a special dividend on top of its regular cash div and will probably give a stock dividend as well. I expect a one year return of at least 20% on my BPI position. I am now timing my entry for TEL since I think TEL is well supported at 2400 and the effective range should be 2400 to 2650. TEL also pays out good dividends of around 110 pesos every March and September.

      Comment by Gus Cosio | February 2, 2011 | Reply

      • I already went in at the 2420 level for tel. Hope its already stabilized at that range.

        Comment by Chriss | February 4, 2011

      • This looks good.

        TEL @2400 giving P220 a year is around 9%.

        Count me in.

        Comment by Alvin | February 4, 2011

  19. Hi sir gus! What’s ur take on sli?

    Comment by An | February 2, 2011 | Reply

    • An,
      I have a small position left. Although it is a bit underwater, because the position is small, it does not bother me to wait for their follow on which might happen after the 2nd quarter of 2011.

      Comment by Gus Cosio | February 2, 2011 | Reply

  20. What a Good Relief Rally…Peak and Trough…Peak and Trough Analysis…

    Comment by Rene | February 2, 2011 | Reply

  21. was able to exit my positions on all my short-term stocks…already cut my losses :”(

    will focus on accumulating stocks for investment…

    Have a nice day to everyone!

    Comment by irving | February 2, 2011 | Reply

    • I think that is a good idea, Irving. I think we will see further profit taking down the road as this market moves higher. At best, we will se a new range being set.

      Comment by Gus Cosio | February 2, 2011 | Reply

  22. this is a little off topic but can someone help me out? let’s say i invested in stocks through a mutual fund last year. as such, the return on paper is like 40% now. would it be a good move for me now to invest the same amount again and average the return to 20%? would i be ruining the good investment i made or is it a generally a good move to average up or down.

    Comment by footballer | February 2, 2011 | Reply

    • Hi footballer,

      Good question! I had a similar idea, but my reason is that NAVPS now is cheaper than when I opened the mutual fund account. So I was thinking what if I redeemed now and then bought shares at current NAVPS, so that I’ll end up with more shares for the same amount of money. Yeah I know it’s a little off-topic, but would appreciate advice/inputs from anyone (Like: cash in your MF and invest in stocks, hehehe)

      Comment by emteki | February 3, 2011 | Reply

  23. I guess, depending on your investment objective whether you are for short-term or long-term. If you look on a long-term perspective, it is always a good chance to invest when the market is down. But to know when the market bottoms already, I think Sir Gus probably have more answers to that. There’s a couple of factors affecting the market…

    Comment by Ogie | February 2, 2011 | Reply

  24. Hi sir Gus,
    Im still holding on to infra and power play namely DMC, MPI and AP. Did well on these stocks last year and managed to keep well deserved earnings. What’s your take on these stocks. Do you think that these issues are still fast horses in the power and infra play.

    Comment by Mark Anthony | February 2, 2011 | Reply

    • Mark,
      Right now, it is not about fast horses but steady ones. We are now in a marathon not a sprint.

      Comment by Gus Cosio | February 7, 2011 | Reply

  25. Sir Gus,

    What do you think about AGI?
    Thanks and more power :)!

    Comment by check | February 3, 2011 | Reply

    • Check,
      I think AGI is still a buy.

      Comment by Gus Cosio | February 7, 2011 | Reply

  26. Dow @ 12062 Highest Closing since JUNE 2008….China Market @ 30 months High….

    Comment by Mike | February 4, 2011 | Reply

  27. Hi Sir Gus,

    Any thoughts on SMDC?

    Thanks in Advance!

    Comment by Forth | February 4, 2011 | Reply

    • Forth,
      SMDC would be a good candidate for a range trading play. Look at the chart to identify entry and exit points. You can make good money on the range.

      Comment by Gus Cosio | February 7, 2011 | Reply

  28. Hi Sir Gus,
    What are your views on the Megawide IPO? Would you recommend it? Thanks…

    Comment by tessa | February 4, 2011 | Reply

  29. Megawide probably has good fundamentals. They are one constructing the BEL casino project. I would probably get this IPO, if it goes up more than 10% in first and second day benta na. Hehe! 🙂

    Comment by George | February 5, 2011 | Reply

    • whats risky is that they have a limited number of clients, and its not like they are the only contractors in the country, competition is fears with this kind of business

      Comment by cliffhanger | February 6, 2011 | Reply

      • “fierce” hehe

        Comment by cliffhanger | February 6, 2011

    • It’s Probably Overpriced.

      Comment by seth | February 6, 2011 | Reply

    • I think Wegawide can work as a trading buy. Suibscribe and sell at listing. No two ways about it.

      Comment by Gus Cosio | February 7, 2011 | Reply


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