Gus Cosio says so

Ideas on the Philippine Stock Market

Give ya, Libya

8;06 am  Tuesday  1 March 2011

I am not claiming this to be a rule of thumb, but being involved in various market over quite a period of time, I have come to learn that traders and investors tend to follow short-term unorthodox indicators to guide their positions.  In today’s case where the Middle East is the obvious stimulus for trading, I think the big traders and hedge funds are using oil futures as a trading indicator.  Oil is down over $3 from its high while the developed markets are up sharply.  The Asian markets were also higher.

While I think the Middle East/North Africa (MENA) situation will take some time to resolve, global investor sentiment appears to have adjusted to the higher oil prices and the prevailing tension that has caused oil prices to spike.  I think investors have come to accept that a prolonged MENA political upheaval will be the norm for sometime.  This inclines me to believe that in the coming weeks, we will be building a base of support for stock prices here.

The impressive spike in AEV yesterday, I think, is a one day event.  I learned that there was one big player adjusting his large index fund to the inclusion of AEV in the MSCI Philippines.  These things happen and makes holders pretty joyful.  I for one am taking portfolio profits in the stock.  As one of our readers had commented yesterday, you had a 17% gain over a few days, why not take the money and run.  I remain in the mindset that you never lose money by taking a profit.

While I am very cautious and am keeping my eye on an index level below 3700, I realize that cheap stocks are already abounding. (Actually my thinking is that a strong support for the market in general is to form a base at 3600.)  Some readers commented on stocks like MWC, JFC and AGI.  I think with these stocks, it will be simply a matter of timing now because they are intrinsically solid and are at levels commensurate to their earnings forecasts.  I must add that these stocks have very stable earnings even if the economy turns.

I think we are close to a point when we can cautiously position our favorites.  On my part, I am likely a seller if this market moves a little higher, but because I have cash to spare, I wouldn’t mind accumulating should this market dip below 3700.

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March 1, 2011 - Posted by | Financial markets in Asia

26 Comments »

  1. Sir Gus,

    The AEV move yesterday was really a surprise.

    No one for sure (except the ones who maybe pushed the price) knew the surge would be that great although people were expecting it to go up.

    People who bought on or before Friday and held on to the stock were lucky–and that includes me. I bought shares at P39.9 last Friday as I was expecting it to go up because it initially broke the strong resistance of P40 and at the same time, the technical indicators I use both have a buy rating on the stock.

    I sold 60% of my AEV holdings yesterday to take profits.

    Now I wonder if it’s going to hold a little longer…?

    Comment by ricky | March 1, 2011 | Reply

    • I think PSE will move higher within the next 2 days because of AEV/AP then a profit taking may happen in Thursday or Friday…Watch out OMAN/Algeria….OIL to 150

      Comment by Jack | March 1, 2011 | Reply

      • As long as Saudi Arabia (with big spare capacity)is intact the price of oil will not reach the level in 2008 ($140). Of course the tension/situation in the Middle East is causing the spike in oil prices. However, OPEC wants the price of oil to be below $100 as that price is advantageous to producers and consumers alike. This was crystalized last month in their meeting in Riyadh by OPEC members and big consuming nations.

        Comment by Ralph | March 1, 2011

    • I would sell AEV at this point and put the money in AP and UBP at this point in time. then I would return to AEV when the prices come closer to each other.

      Comment by Gus Cosio | March 1, 2011 | Reply

      • Ey Gus,

        What would be a good price to ride again on AEV? I heard earnings report is coming out this week for AEV and AP. I hope it will exceed forecasts.

        Comment by Gordon Gekko | March 1, 2011

      • Thanks po Sir Gus for giving your opinion. I tried to see how AEV would fare today and it did correct a bit to close at P43.50.

        I tried to buy a little at the close but it seemed there were no sellers at the closing price. So i’d observe tomorrow and if it still goes lower, i’d sell my remaining shares and possibly shift to AP if it’s surge continues.

        Sir, you mentioned that you’d return to AEV once the price get closer to that of AP..how close po is acceptable for you?

        Thanks po and God bless!

        Comment by ricky | March 1, 2011

  2. Hi Sir,

    I’m currently down around 10-15% to date. People have been saying to sell on the slight advantage of prices but I’m quite hesitant because I would not like to be out of position since I dont trade often. Im more of the buy and hold person since id be needing the funds probably in 10 years time. I made around 60% last year by just buying and forgetting but I made sure these companies were not just made up of air. What can you recommend for long term investors? I tried short term trading but in the end, I felt really tired in the end..

    Comment by Bell | March 1, 2011 | Reply

    • Bell,
      if you have a long horizon, just make sure you have a portfolio of companies that have strong earnings and good valuations. Preferably, they should be paying some dividend. Even if you are a long term holder, you should follow news and disclosures about the stocks you own because some adverse events may arise. Also, if you have stocks that have gone up more than 50%, you could top slice on those stocks and buy them back when they have a correction. You do not have to trade everyday or even every week. You just have to follow the market to manage your portfolio.
      If you do not want to bother about the market intently, you could buy an equity fund with your profits already and let the fund manager do the job.

      Comment by Gus Cosio | March 1, 2011 | Reply

      • thats a very nice statement Sir Gus. When looking at the market everyday, if stock prices keeps going up, its easy to get caught up and believe they will go up even further. and when prices are going down, we blame ourselves for not keeping cash for the buybacks.
        As you have always said in the past, money management is very important. More important than buying at the very bottom and selling at the very top.

        Comment by Gas Cosly | March 1, 2011

  3. Hi sir!

    Technically speaking, what will be the buying of ORE?

    Thanks in advance.

    Comment by Abangers | March 1, 2011 | Reply

    • Abangers,
      I do not want to get your hopes up but from the looks of the chart, I think ORE has already bounced from its bottom. I would buy at any pull backs from here. If you add to your position, it must be money you can afford to tie up. I like the stock, but I make no guarantees that you can make money.

      Comment by Gus Cosio | March 1, 2011 | Reply

      • Thanks Sir Gus!

        Comment by Abangers | March 1, 2011

    • ORE had already bottomed at around 2.5 based on technicals. On the fundamental side, I am positive that the shipment will push through very soon.

      Comment by Zandro | March 1, 2011 | Reply

  4. JFC

    debt/equity = 0.76

    PE ratio = 25

    sales 2008-2010 = 43, 48, 52

    eps 2008-2010 = 2.25, 2.58, 2.87

    net profit margins at 6%

    return on equity 16.3%

    dividend yield 3%

    Comment by cliffhanger | March 1, 2011 | Reply

    • Cliff,

      What is the point of the above post? Are you trying to say that JFC is a buy at current prices?

      Comment by jasper | March 1, 2011 | Reply

      • i want u guys to comment on the numbers 🙂

        Comment by cliffhanger | March 1, 2011

    • oh, i forgot to mention p/bv = 4.4

      Comment by cliffhanger | March 1, 2011 | Reply

    • I see. JFC has steadily growing sales, which is good and not surprising; but with a profit margin of 6%, it means that cost of sales should also be high. Furthermore, the fact that a lot of investors had positioned themselves in JFC resulted to a highly overvalued market price (with respect to earnings, and with respect to books). Dividend yield is ok but not enough to combat inflation, if JFC had to be part of your long-term (i.e., lifetime) holdings.

      Comment by jasper | March 1, 2011 | Reply

      • jasper,

        try not no ignore its roe, it is significantly high. if it is sustainable over years it may be worth for keep based on expanding shareholder value. besides i think jfc is a consumer monopoly business.

        Comment by richard | March 1, 2011

      • richard,

        I agree with you about ROE. But as a monopoly, I do not think so. AGI is just as capable to promote its McDonalds franchise all over the country. Just my opinion. 🙂

        Comment by Alijeffty C. Gonzales | March 1, 2011

      • Richard,

        ROE may be high since JFC is a highly leveraged firm. Unless you have other companies to compare with that have more or less the same D/E ratio (within the same industry).

        Comment by scion | March 1, 2011

    • cliff,

      I think based on your acid test, JFC won’t pass because of the high P/E and P/BV.

      It’s worth noting that this will be the first full year that Mang Inasal contribute to JFC’s revenues and earnings.

      Plus, the price had a good correction lately (except today where it significantly went up by P3.75) and its expansion in China is set to make a significant contribution as well.

      Comment by ricky | March 1, 2011 | Reply

      • acid tests can easily be neutralized by the caustic appeal of downtrends to suckered traders who bought at the tops. just my opinion. 😉

        Comment by chris munti | March 1, 2011

  5. hi gus,

    i noticed you commented on AGI. what is it’s estimated earnings? because based on historic earnings, it is trading with a high p/e already, but im sure its estimated earnings will be greater than previous. what are your estimates? thanks very much and more power!

    Comment by rommel | March 1, 2011 | Reply

  6. Hello Mr. Cosio

    I just wanted to thank you for having such an insightful blog and for sharing your wisdom with us. I’ve always wanted to become a stock broker but have only recently begun getting serious about understanding the market and how the entire industry works. Although i’m probably years from realizing my goal your blog has helped immensely. I am really looking forward to reading more of your entries in the future.

    Comment by Anton Gaskell | March 2, 2011 | Reply

  7. Hi Sir,

    I managed to get SMDC’s SRO last year. Would you recommend selling these given our current market conditions?

    Thanks

    Comment by Gia | March 2, 2011 | Reply


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